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Recovery is proceeding 'incredibly well’ despite pandemic: Financial Advisor

Susan Kaplan, President of Kaplan Financial Services and one of Barron's 2020 Top 100 Women Advisors, joins Yahoo Finance’s Zack Guzman to discuss the latest market action, and how she's advising her clients amid the coronavirus pandemic.

Video Transcript

ZACK GUZMAN: We did get an update on inflation here from the Labor Department this morning, showing that inflation in the month of August ran a little bit hotter than expected. Overall, the Consumer Price Index rising 1.3% from a year ago after a 1% annual increase in July. Overall for the month, CPI climbing 0.4% versus the 0.6% advance we saw in July. Median projections that economists were bracing for call for a 1.2% year-over-year rise and a 0.3% gain on a monthly basis.

So there you can see, a little bit hotter than what a lot of people were expecting. And that was driven in the most part by the sharpest monthly gain we've seen in used vehicle sales since 1969. Conversely, education costs dropped-- showed the first drop dating back to 1993, as prices there continue to fluctuate in this learn-from-home environment that's been sparked by the pandemic. So there are a couple of different forces at work here.

Of course, all of that boiling into the stock market moves that we've seen. And volatility remains the name of the game. So how should investors be bracing for it? That's the big question we're breaking down here to wrap up the week.

And here to discuss that with us is our first market guest. Susan Kaplan is the president of Kaplan Financial Services, and also was on the Barron's list of Top 100 Women Advisors. And she joins us now. And Susan, thanks so much for joining us.

I guess we'll just start with that new inflation update. A lot of people might say why do we even care, since the Fed came out earlier and said it's fine to run past their 2% inflation target here, and saying that they're going to be more accommodative. But what does it say to you, I guess, about the recovery as we see it now and what investors should be looking at?

SUSAN KAPLAN: I think the recovery is really proceeding incredibly well. I think the markets have been more stable than one would anticipate, given we're in the middle of the pandemic and there's no cure or vaccine yet. And so I think the recovery is really proceeding really nicely.

The market volatility, I've actually been shocked that it hasn't been more than that before it, before now. And so that-- everything seems to rise and fall with each new number that comes out. But investors should be careful that they've made their plan in isolation-- in isolation from the market and the volatility.

How much in your whole portfolio do you want in the market? How much do you want to be absolutely safe? And every single investment is really based on time horizon, when you need the money or the income from the money, and your risk tolerance.

And so generally speaking, risk tolerance is really affected most heavily by what's happening right this minute. And because right this minute, i.e. the second 3/4 of 2020, is frantic. The pandemic is still going. Everyone's very edgy about the election. There have been civil issues.

And so I think everyone is feeling fractured when it comes to their portfolio. And the impulse tends to be to rip money in and out, when, in fact, you can't do that. It's been proven over and over and over. So you have to make the plan, commit to how much you want in the market, commit to what industries you want to be centered in, and then step away.

ZACK GUZMAN: And that's one of the things, too. We were talking to Dan Niles yesterday about how volatility might have been heightened through all this. He made one point there that participation from retail investors has risen since the pre-pandemic era, 25% now in terms of volume versus what we saw at 10% before. So a lot of these jitters could be joined by exactly what you're discussing, in terms of maybe people are not bracing for some losses here, expecting stocks to only go up in value. We know that's not the case.

So, I mean, when you're looking at it, there's a few measures you talk about, I'm sure, with clients here in terms of dollar-cost averaging, not trying to time the market to defend against what we saw this week in terms of quick volatility here hitting the market. I mean, how would you tell investors to best put that into practice here moving forward if now-- we know that there's a lot of cash on the sidelines-- if new investors are coming into the market now?

SUSAN KAPLAN: You really have to make a decision, how much you want to go into the market and over what time period. Because we've been in periods, not just in the late '90s, but even after we rebounded from March this year, where the market seemed to keep going straight up. And if you're always waiting for a market drop and we're in a very robust market, you can sit on the sidelines in the money market for weeks and then regret all the growth you didn't get.

So you make a commitment to yourself-- how much is going to go in over what period of time. And then as that week or month or whatever elapses, you put it in regardless. And so that's by far the best way to do it.

ZACK GUZMAN: In terms of diversification here, another one of those, I guess, fundamental lessons to bestow upon investors, even experienced investors it's always a good reminder. I mean, when we talk about some of these growth drivers here and the tech names that we keep watching here and the FAANG stocks, a lot of those, despite the fact they've enjoyed a nice 2020, there are other names out there outside of the tech space worth highlighting here as well. Boston Beer Company one of those names enjoying incredible growth year out, more than 100% year-to-date. So, I mean, when you talk about diversification and where you see opportunity now, what are you looking at in terms of the sectors you enjoy for people to take a look at?

SUSAN KAPLAN: Financials-- not banks, but Visa, Mastercard, Walmart, Costco-- these are mainstream blue chip companies that have given very nice returns, and yet are in different fields, so that if the technology sector really takes a hit, it's very demoralizing to see everything drop. And the bad thing is all of us tend to find certain investments more appealing than others. So we keep buying them over and over and over. And even though the names may be different, it's true in fund land or stock land, when you really look at the diversification of the portfolio, you have to make sure that you have different segments of the economy captured.

ZACK GUZMAN: Mhm. Yeah, and I mean, when we're talking about this recovery, just to wrap up on this question, things did seem to be progressing in the right direction. But over the last few jobs reports, we've noted a deceleration in terms of the strength of the recovery. A lot of people asking how much of that might be tied to what we've seen on the benefits front, tied to unemployment.

We know at the end of July that additional $600 in federal aid tied to the CARES Act rolled off for unemployed workers. But as millions of Americans still file for aid here and a lot of questions surrounding how much states might be able to fund those benefits here in the future without another round of stimulus, what do you foresee for the back half of 2020 here in the strength of the consumer tied to, I guess, where the economy stands right now?

SUSAN KAPLAN: I think the frustration is that Congress has been so paralyzed by hatred for each side that things aren't getting accomplished. And without giving more aid to the states and the people, it is going to start to stall the recovery a bit, because there won't be enough funds. We were really going along perfectly, where we were spending more in August than we did in July, than we did even pre-pandemic.

But then as money dries up, there's nothing there. And we've learned nothing if not from the Depression that we have to fund this, as the rest of the world is. And other countries are funding completely people's income for a whole year. And so it's important that we continue to do that, and Congress gets by their disagreements with each other and thinks of the American people.

ZACK GUZMAN: It was one of those kind of head scratchers here we saw personal incomes rising through the pandemic, a lot of that coming from the boost of the CARES Act. Of course, that wavering here the longer we move along here in 2020. But Susan Kaplan, president of Kaplan Financial Services, appreciate you bringing that update and insight for investors.

SUSAN KAPLAN: Thanks so much. Bye-bye.