Volatility provides ‘opportunity’ at ‘more attractive levels,’ financial adviser says
Echo Wealth Management Founder and President Echo Huang joins Yahoo Finance Live to discuss market swings, the strength of the U.S. dollar, inflation, understanding investments, volatility, and the outlook for the economy.
JARED BLIKRE: Welcome back. Let's take a quick look at the markets on another down day and a down week for stocks. Looks like the Dow is down 1%, so is the NASDAQ. S&P 500 down a little bit less, just 93 basis points. The Russell 2000 by far the outlier-- that is down nearly 2%.
Now, if you found yourself panicking after Tuesday's big sell-off on the back of hotter than expected inflation data, you're probably not alone. Whether you're nearing retirement or farther away from that finish line, there are plenty of strategies to help make you the best of a down market. Echo Wealth Management's Founder and President Echo Huang joins us now.
Echo, thank you for joining us today. Just your overview of some of the data we've been getting recently-- we got a little bit hotter than expected retail sales yesterday. But I think CPI was really the big one this week.
ECHO HUANG: Yes. I think inflation number is still very high, even though it has gone down just a little bit. But I think it's still above 8%. And labor data is a positive spot on the economy. But we anticipate slowdown in economy.
So I think overall, we are in a situation where expected higher volatility in the stock market. And definitely not a great time for people to panic at this moment. I'm here to definitely emphasize on the importance of having a real cash flow financial plan that should incorporate all the details on cash flow needs, withdrawal for the next, for example, 5 to 10 years, even, for people to better prepare for the downturn, because we expect the volatility will continue.
JARED BLIKRE: Well, let's talk about the importance of maintaining that cash flow for those who need it. I guess if you're 10 years away from retirement, very much top of mind for you. Even younger investors have to get their mentality around the necessities for later in life. So what are you thinking of in terms of what your investors, what your clients should be focusing on right now?
ECHO HUANG: Yeah. For people-- actually for most people, they always have some money that is invested for the long-term, for retirement, for example, with at least 6 to 10 years of time horizon. So for most people, they need to carve out the money.
Part of it is for short-term needs and most of it probably is for long-term. So volatility is not all bad. Of course, investors fear that because of volatility, they will lose their hard-earned money.
But for people with the right plan and with the time on their side, it is actually a great time in terms of opportunities to get into the market at more attractive levels. I want to point that out, because the S&P 500 forward PE right now is actually a little bit lower than the 25-year average.
So think about it was so much higher last year end. So I want people to look at this and ask themselves if the money you don't need for six years or longer, even the worst recession, it probably would recover. So buying quality stocks at discounted prices is an opportunity for people to earn much greater returns than being fearful and stop investing.
JARED BLIKRE: And let's talk about where some of those returns-- investors might find some of those returns. As you're noting to us today in your notes, large-cap growth stocks lost almost 24% year-to-date, value only losing 13%. But sometimes the opportunities are in those stocks which get beaten down the most. Also want to bring up emerging markets, that's something in your notes. What do you like for your longer term investors who have some time on their side?
ECHO HUANG: Yes. The large-cap growth stock has been beaten down so far. I think for people who want to take advantage of the price point, I would overweight US large companies. And for people who are willing to take a little bit, like, higher risk because they have a lot more time, I would even overweight emerging market, especially China.
And Chinese stocks have been beaten down very badly, I mean, last year and this year, especially technology stocks. So it's actually, in my view, with the time on your side, it's a buying opportunity. I also want to point out for people when they think about risk, how to think about risk.
If you have a plan that's well thought out, asset allocation plan by working with trusted financial advisor and is well diversified, the risk doesn't mean that you are going to lose all the money you have invested. Risk is more about the variance-- like, how much of a swing in value you can tolerate.
And that can be quantified by using different kinds of tools. So I want people to start thinking about risk. Every investment has a risk. Not investing is even more risky, because you are pretty much guaranteed to fail or not achieving your goals.
So this is the right time for people to start thinking about more comprehensive financial planning, including budgeting cash flow, their detailed cash flow. If they understand where they're going to draw money to pay expenses in the next three to four years, they should not panic when the stock market, you know, like this week.
JARED BLIKRE: Like this week.
ECHO HUANG: It doesn't look good. It doesn't look good on paper, but I always want to caution people-- taking action right now to get out of the market could be the worst mistake you could make. It's a good time to review, and go back to the plan, and say, what kind of adjustments I could make based on my current situation. And do not do things quickly based on the emotions.
JARED BLIKRE: Very important to sometimes turn the news flow down a couple of notches there, especially when the market is screaming all those angry signals that we got earlier this week. Echo Huang, Founder and President of Echo Wealth Management, thank you for joining us this morning.