Over the past two weeks the story regarding the coronavirus has escalated from a tale of caution to widespread panic and hysteria. Warranted or not, this has caused pressure on the financial markets, both stocks and bonds alike. So, what does that mean for you as an investor?
Last summer, we anticipated that volatility would return to the markets in 2020. We transitioned our portfolios over the end of the summer and into the fall to be positioned in the best possible way to absorb the volatility. Do these moves protect you from inevitable downward movement? Probably not, but they are intended to buffer the movement especially when markets begin to slide. To put that into numbers, as of this writing (March 6, 2020) since the peak on February 19th, our equity portfolio is down 8.34% compared to the S&P 500 (down 10.62%) and the global equity markets as measured by the All Cap World Index (down 9.95%). Our fixed income (bonds) and alternative sub-portfolios are still both positive for the year, and by design have cushioned the movement of the stock portfolio.
All in all, our portfolios are doing what they are designed to do. No investor is the same as another. Each person has different points where he/she begins to feel uncomfortable. There is no right or wrong way to feel during periods like this but we are here to address your concerns and help you from making potentially catastrophic financial mistakes.
So, what can you do during periods like this?
· First, RELAX. Markets have seen this kind of movement before. Just like no two investors are the same, no two market corrections are the same. They move differently each time. A correction typically occurs once a year; we didn’t have one in 2019, so we were due. While this may not feel normal, it is.
· Rebalancing is your greatest weapon during periods of volatility. Volatility doesn’t just move down; it is simply a measure of movement. Whether markets are growing or falling, the most basic rule of investing doesn’t change. Buy low, sell high. Purposeful rebalancing ensures that is happening. This is something we will always monitor for you.
· Reduce cash outflows. Expenses and life still happen regardless of what is happening in the markets, and for those needs we can systematically liquidate positions to ensure that there is as minimal effect as possible. With that being said, if there are expenses that require you to pull cash from your accounts when the markets move down, it is best to delay when possible.
· Have we mentioned to relax? Sometimes the best course of action is to just turn off the television, phone, computer, or wherever else that inundates you with the media coverage. If you know you are going to be panicked by looking at your account statement, then don’t do it. If you want to analyze it to make you feel more comfortable, than please do. We will continue to monitor your portfolio and ensure that if there are opportunities to rebalance or generate beneficial tax losses to include on your tax return, we will capitalize on that. You have entrusted us as your advisor and we have a great appreciation for that.
Is there any good news that we can give you? Sure! The most important news is our economy is still very solid. The job’s report just came out this morning from the Department of Labor, and we continue to see great strength in the labor market. From this report, we learned employers are still hiring, average hours worked are increasing, average wages are growing, unemployment dropped slightly, and the labor force participation rate is still steady indicating there’s probably still more room to grow. Overall, companies reporting earnings have been solid as well. Going into this latest period of volatility our economy is strong and we anticipate that coming out of it we will still be on solid footing, which is the basis for our financial markets.
As always, if there are concerns, we are here to talk you through them. Let’s address them quickly so you can get back to living and enjoying life.
Ryan Flanders, CFA