How Some Palm Beach County Residents Missed Out on the Financial Markets Recovery

March 3, 2014 § Leave a comment

Many Palm Beach area residents are not as wealthy as they were before the 2008 recession, even though the financial markets have staged a strong comeback.  Let’s look at what happened, and discuss where you can go from here if this is your situation.

Many high net worth residents of country club communities in the wealthy zip codes of Jupiter and the Palm Beaches suffered substantial losses during the economic crash.  These losses may have come at their own hands or because they were ill advised by their brokers.  In times of stress, some financial advisors will recommend pulling back, but that’s not always the best reaction to a market downturn.

Emotional investors tend to “buy high and sell low”.  Academic studies would indicate that individual retail investors often underperform the markets because of this tendency.  Some studies indicate that individual retail investors typically average 4% from long term investments over time, against much higher long term averages for asset class indexes.

Experienced financial advisors, like those at The Lyman Group, tend to operate counter-intuitively.  That is to say, when others are fearful and selling their positions for lower prices, the Lyman Group team is combing through the data, looking for bargains with upside promise.

It’s understandable for most advisors to recommend a conservative approach, because investors are scared and they want to stop the volatility and feel that their money is secure.  But this reactive approach, as opposed to a proactive approach, is often too risk-averse.  The investor ends up with anemic returns that force him or her to spend more of their principal on living expenses.

Successful investment advisors know that a market downturn is a signal to buy.  That’s because the prices of securities and other investment instruments are at a low point.  Throughout history a downturn has been followed by a recovery, and it happened over the last five years as well.  Those who fled the market in 2008 missed the ensuing run-up.

After a downturn, the likelihood is the economy will heat back up, interest rates will rise, and the value of conservative bonds will fall in relation to more growth oriented investments.  In the longer view, most asset classes have enjoyed historic rates of return of 11% annually, so you can see that historically the upturns have more than matched the downturns over time.

For advisors, though, it can be very difficult to tell a worried client it’s time to buy when the markets have plunged 20% and the financial headlines are grim.  That takes an advisor who’s trying to make money for you, as opposed to telling you what he thinks you want to hear.

The Lyman Group at HighTower Advisors, a Registered Investment Advisor, has a fiduciary obligation to put your interests first, and will design a financial plan that takes market downturns into account and turns them into buying opportunities.  And unlike brokers, The Lyman Group at Hightower Advisors does no commission based business.

In the meantime, Palm Beach County country club communities such as Admirals Cove, Old Palm, Trump National, BallenIsles, Mirasol, Bear’s Club and Frenchman’s Creek can suffer economically because their residents have less money to spend.  Country clubs have a lot of fixed costs related to maintenance and if they reduce staff, members get less service.  These clubs tread a razor’s edge in keeping “costs per member” under control while providing the service that members expect.

Some clubs have reduced membership fees, but that option can upset members who paid a higher fee previously.  Others have merged with larger organizations, and a couple of clubs have filed for reorganization.

If you are a resident of a country club community in Jupiter, Palm Beach, North Palm Beach or Palm Beach Gardens, it’s important to take a more proactive and comprehensive approach to your finances.  Make sure you understand your country club community’s financial situation, and make your voice heard as a member.

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