This is what we’ve planned for!

Thoughts to remember in this period of market volatility.

As investors, we know that we cannot achieve high long-term returns without periods of volatility, so we try to keep these market movements in perspective. Here are some of our thoughts.
  • 2019 brought positive returns: S&P 500 up 29%, Dow up 22%, corporate bonds up 13%.
  • 2020 started strong as well, with the S&P returning an annualized rate of 29% through February 19 and the Dow returning an annualized 12% through the same day.
  • Unemployment remains low, wages have started to grow, and consumer confidence was high.
Then, two major and unpredictable events interrupted the trends:
  1. The COVID-19 Coronavirus outbreak interrupted supply chains, reduced demand for some sectors such as travel, and has likely had a negative effect on employment (we will have to wait and see March numbers). Corporate earnings will likely be down over the next two quarters as the effects of the virus on supply and demand continue. The impact of all of this has been exacerbated by lack of confidence in government preparedness to handle the emerging pandemic.
  2. An oil price war has begun between Russia and Saudi Arabia, leading to increased oil supply during a time when oil demand is down due to virus-related reduction in travel. Energy stocks fell hard yesterday, also bringing down stock prices in most other sectors.

What should you do?

If you are young and building your nest egg for the future:
  • Revisit your investment portfolio, but resist the temptation to make changes unless your goals have changed. We built your portfolio to withstand shocks and maximize long-term growth.
  • If you feel your job might be at risk, make sure your cash emergency fund is healthy. If it is, consider contributing to a non-qualified investment account and investing while the market is down. Take advantage of low prices.
  • Consider increasing your 401k/403b contribution rate if your budget will allow.
  • Put more money in your 529 plans if you have them.
  • Consider refinancing your home or consolidating debts to take advantage of low interest rates.
  • Some of your portfolio may be invested in lower-risk investments like treasury bonds, which have a positive year-to-date return. This is the “dry powder” you will use to buy more stocks when we rebalance your portfolio.
If you are approaching retirement or are already retired:
  • Remember that some holdings in your portfolio have likely gone up in value in the last month, particularly if you own US Treasuries. This is the “dry powder” that you will use to buy riskier assets that are down in price when we rebalance your portfolio.
  • Remember that stocks are important for most folks as a great hedge to inflation. You need them, and now is not the time to sell them unless your portfolio is not aligned with your goals or your goals have changed.
  • Understand that reduced market values do not necessarily impact income. Take comfort that your income investments are helping!
  • Be aware that interest rates have fallen, and your income portfolio might be affected. We are working to minimize the impact so that yields stay as high as possible.
  • We are looking carefully at each holding to determine our confidence level that distributions will continue despite potentially lower profits over the next two quarters.
  • If you have cash, consider buying stocks. This downturn is a gift for long-term investors. If you have a greater than 10-year time horizon, it is highly likely that you will look back and wish you invested more in stocks right now.
Although volatility is never fun, it is necessary for high long-term returns. Dips in market values are typically followed by periods of positive returns. By working with us, you are thoughtfully invested so that you can worry less and enjoy more. We are monitoring events and our clients’ accounts. We will be reaching out to you if we think any changes are needed, but feel free to reach out to us as well.
We’ve planned for this type of market correction.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations may vary. Therefore, this information should be relied upon when coordinated with individual professional advice.