Dear Clients,
We’re reaching out during this time of market volatility to provide you with our two cents and some helpful information.
What’s Happening?
Understanding what’s caused the most recent downturn is pretty straight forward. As the Coronavirus continues to spread, China’s economy has slowed significantly due to quarantines and factory closures. This has caused an economic ripple around the globe adversely affecting the production and implementation of a sizable share of global goods and services, which in turn has adversely affected the profitability of businesses large and small.
The prices of risk assets like stocks and commodities dropped precipitously last week bringing all the major indices into “correction” territory, a drop of between 10% – 19.99%. Since World War II we have had a couple of dozen market corrections with just less than half of those happening in the last 20 years. On average, it has taken less than half a year to recoup the value decline of a correction.
What Should I Do?
For those of you we’ve spoken with over the last year or two (or four), you have heard us beating the drum of increased volatility. While no one can predict the timing or catalyst of a correction, we all knew one would eventually happen. That said, expecting it and experiencing it are two very different things, and we understand the former doesn’t alleviate the anxiety of the latter. We are genetically wired to react more emotionally to loss than gain. Yet, if history is a guide, staying invested is usually one of the best things we can do. Many times the best action we can take is no action at all. We encourage you to look at your investments through a long-term lens, and for goodness sake, don’t look at them every day. Even when markets are doing well, this can be crazy-making.
We recommend staying the course; here’s why. Over the past few years, we’ve been working to reposition your portfolio away from growth stocks (the ones most heavily hit as of late) in anticipation of looming market volatility. For those of you taking regular withdrawals from your portfolio, we raised cash in order to hopefully avoid the need to sell risk assets during a correction. Take comfort in knowing that your next withdrawal should not require selling off assets at a low in order to raise cash. If you are on the cusp of an unplanned withdrawal need, call us and we can talk about the options.
In the meantime, remember your portfolios are not entirely invested in stocks but are broadly diversified. This has made a significant difference over this last period. Bonds have done quite well, even as stocks have declined, and this has helped to stem the declines in your portfolios. As always, diversification is the key. Over time, the trajectory of this situation will become clearer and the world will get back to work. We know that investment success comes from discipline and from resisting the urge to “follow the pack” whether the pack is buying or selling.
Outside of your financial accounts, we recommend you stay calm. Our hearts go out to the many families that have been affected by the virus itself and by the economic disruption that has accompanied its spread. While we know that the market reaction will be temporary, we don’t want to downplay the repercussions this virus has caused.
What’s Next?
Difficulty in precise and real-time measurement have left the human and economic impacts unknown. As we write to you, China has begun to open factories and some stabilization appears to be taking place. However, any speculation on what’s to come would be not only unwise but has the potential to fuel the fires of panic/denial. As always, it’s our goal to focus on the things we have control over. In addition to your financial concerns/precautions we recommend you take reasonable personal precautions. Cover your cough, avoid being around other people if either you or they are sick, and frequently wash your hands. For a more detailed discussion of personal precautions here’s a great article by the Scientific American.
If you’re still feeling anxious and want to talk, we invite you to call us. This is precisely the reason we are here.
