Q. When did you first realize the magnitude of the challenges facing the financial markets, and how did you prepare?
A. In August 2006, I saw an inverted yield curve that signaled the problem was coming. That's when short-term yields stayed higher than the yield on the 10-year Treasury for more than a month. I started telling my clients we were heading toward a big recession, and I remember losing my biggest client in October 2007 because I started setting [stop-loss orders] tighter and told him we would be moving into cash. We went into 2008 almost totally in cash. We tried to go back into the markets a couple times, but each time, the stops kicked us back out. Historically, when the Dow [Jones Industrial Average], S&P [500] and Nasdaq [Composite Index] are all down 20%, it signals corrections, so every time I got back in within two weeks, the stops kicked us back out.
That kind of frustration, especially from my clients, is basically what started keeping me up at night throughout the crisis. At that point, about 70% of my clients were retired, and I didn't know how I was going to provide them with income when the markets weren't rising. Then in early 2009, I started writing newsletter articles about getting back in the markets, and then I realized my new problem was that nobody wanted to get back in.
So in April 2009, I gave my clients a choice to go all in at once, half in or use options to invest the equivalent of half. Only about half a dozen of my 100 clients went all-in at once. Two went in and used options. The rest were going in at 50% and putting the other half in by October of that same year. But that whole experience solidified with my clients what we were doing and made them extremely happy. By the time we got into June or July of 2009, they realized how well we had done throughout the crisis.”
Theodore Feight
Owner
Creative Financial Design
Lansing, Mich.
— as told to Jeff Benjamin
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