I’ve been advising clients for 14 years now. It feels like I’ve discussed, written, ate, slept and breathed investment commentary and asset allocation advice more in the past three weeks than I have in the prior 14 years combined. As a financial planner, we are very disciplined in how we treat the markets, but fear abounds and during these unprecedented times, fear calls all advice into question.
The coronavirus pandemic will in all likelihood push our economy into recession and is making 10% swings in the S&P 500 Index feel commonplace these days. This part of my job, communicating about investments, feels different this time though. It’s not just about investments. It’s personal. It’s felt by everyone. Schools are closed, my kids are home, major events have been cancelled, major league sports seasons have been postponed, travel restrictions have been put in place, many employees are being sent home to work remotely, planes are empty, and my small business owner friends running food services, contracting, and retail businesses are closing up.
So now what? What do we do when fear abounds? I put together a list of things I felt I learned back in 2008 as a young adviser and things that have rung true with me over and over again since then. Let’s go back to the fundamentals:
- You’re told to “diversify” but what does that really mean to you today? It means you probably have a cash reserve to pay bills and run your life for a while without having to liquidate investments. It means you probably have fixed income (bonds) that not only stabilizes a portion of your portfolio value during these tough times, but it pays you to wait. Remember, certain investments pay interest and dividends (yield) on a consistent basis that helps replace portions of cash you’re spending. That’s what diversification can do for you – help you weather the storm by continuing to create paychecks, while you wait for stock values to rebound.
- You’re told to be fearful when others are greedy and greedy when others are fearful. What does that mean to you today? Maybe when it feels the worst to you, that’s the time to rebalance your portfolio. Fear as a human emotion is magnified when situations arise quickly and unexpectedly. And this sharp decline took 16 days to hit bear market territory, faster than any other decline, ever. I’m not immune to this fear either. But the only thing worse than not having a plan is abandoning the one you have! The stock market has already suffered declines similar to those associated with mild recessions. And we know that will happen from time to time. This one may just feel worse based on the speed. So, rebalance. That doesn’t mean stocks can’t go lower. It just means that the opportunity for long-term investors is getting more attractive.
- If you work with us, you probably have a financial plan. What does that mean to you, personally? It means we plan for recessions and bear markets and project annualized rates of return over long periods of time, not 3-month windows. What rate of return do you need to make for your long-term retirement plan work? 4%? 6%? 8%? Look at market returns over the last 10 years, including this sharp decline. Are you still tracking your target? That’s the most important context to have when thinking about “how does this market correction truly affect me.” Review your plan.
- Try to stay positive. What does that mean? It means looking to us for the important context! The great news is that the US economy was very healthy before this three-week stretch of steep market declines, with employment strong and the unemployment rate near 50-year lows, solid job and wage gains, corporate profits poised to accelerate, and company balance sheets in excellent shape. This bodes well for a faster recovery on the other side. Like someone who gets sick, the healthier you are coming into it, the faster you tend to recover.
- Rely on your financial advisor. We are here to coach you through this. We’re never too busy to go through your plan again, even if we’ve already talked about it recently. We are here for you.
Above all else, be safe.
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