Morningstar - Q3 2020 - 7

Letter From the Editor

How to Stay the Course

Jerry Kerns

New research from Morningstar demonstrates
the importance of having an investment
plan and sticking to it in times of market turmoil.
Being prepared to weather market crashes
that inevitably occur over long time horizons is an
essential aspect of successful investing
and leads to building wealth and meeting goals.
As we showed last issue ("Black Turkeys
Everywhere," Page 37), markets eventually
recover and go on to new heights. Investors who
panic and miss these recoveries make a
costly mistake.
The first quarter's market crash provided an
opportunity for Morningstar retirement
researcher David Blanchett to look at how 401(k)
participants reacted to a collapsing market.
He studied more than 500 accounts and found
that those investors whose portfolios were
professionally managed, either through target-date
funds or managed accounts, made significantly
less changes to their portfolios than investors who
directed their own investments ("Cultivating
Patience," Page 27). Blanchett surmises that the
reason is that investors who delegated their
portfolio to professional management had
a higher level of trust in their portfolios than those
who were managing on their own. "[t]hese
findings provide strong early evidence
that [professionally managed portfolios] can
help participants stay the course during times
of market volatility," he writes.

believe that a plan can only be successful
if a client is able to stick with it during times of
trouble. The key aspect of the framework?
It keeps investors' focus on their goals, not the
daily gyrations of the market.
When the video of Minneapolis police killing
George Floyd sparked nationwide outrage
and protests, U.S. companies rushed to pronounce
that Black Lives Matter and rolled out
promises to change their actions and increase
diversity. To San Francisco-based advisor
Rachel Robasciotti, that is not enough. Robasciotti
listens to community groups and nonprofit
organizations and then invests her clients' assets
in companies that work for the benefit of
society, while avoiding firms she says support
systemic racial oppression. She also puts pressure
on companies to end sexual harassment. Her
social justice investing philosophy is an outcrop
of her personal experience, and her story,
written by financial journalist Charles Keenan,
is a must-read. ("Investing for Social Justice From
the Bottom Up," Page 69).

Next, we dive into how advisors can prepare
clients to act rationally during the next
crash. Behavioral scientists Ryan O. Murphy and
Stephen Wendel unveil what they call a
"Goals-Based Risk" framework for dealing with the
emotional rollercoaster that market volatility
brings ("Keep Their Eyes on the Prize," Page 31).
It's a four-step process that enables advisors
to develop investment strategies that serve client
goals while responding to their feelings
about market volatility. Murphy and Wendel

morningstar.com/lp/magazine

7


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Morningstar - Q3 2020

Table of Contents for the Digital Edition of Morningstar - Q3 2020

Contents
Morningstar - Q3 2020 - CT1
Morningstar - Q3 2020 - CT2
Morningstar - Q3 2020 - Cover1
Morningstar - Q3 2020 - Cover2
Morningstar - Q3 2020 - 1
Morningstar - Q3 2020 - 2
Morningstar - Q3 2020 - Contents
Morningstar - Q3 2020 - 4
Morningstar - Q3 2020 - 5
Morningstar - Q3 2020 - 6
Morningstar - Q3 2020 - 7
Morningstar - Q3 2020 - 8
Morningstar - Q3 2020 - 9
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