Hopefully you already received and watched our February 28th market commentary about how COVID-19 has impacted our global economy. While it has only been a couple of weeks since we sent that email, a lot has happened since then!
The number of cases of COVID-19 in the US has continued to grow, much of this due to more people being tested. Many state and local governments, as well as private industry, have encouraged the cancelation of events and gatherings, in order to try and help prevent the spread of the virus. Naturally, this will have an impact on the economy. When people are forced or compelled to stay home more, this usually leads to less spending, which leads to economic slowdown. Some are concerned that this could lead the US into a recession and that has caused a lot of volatility in the last two weeks.
Not a Time to Panic
It is important to remember that recessions are a normal part of the economic cycle. This week, the US stock market indices went into bear market territory. That is, they are down more than 20% from their peak. Bear markets are also part of the normal stock market cycle. I know we have said it many times before but it is worth repeating- investing is for the long term. Historically, stock markets have moved higher, bouncing back from bear market declines.
Market Timing Doesn’t Work
Every once in a while, we will have a client say, “why don’t we just get out of the market for now until things get better?” While it would be ideal to be able to move out before markets drop and get back in before they recover, it is not realistic. We have no way to time these things and history shows us time and again that trying to time the markets always fails. A 2019 DALBAR study shows from 1999-2018, the average investor in stock mutual funds averaged only 3.88% annually while the S&P index returned 5.62% over the same period of time. The majority of this difference is due to investors trying to move money in and out of the market rather than leaving it invested.
We also know that for the same period of time, if an investor missed only the ten best days in the market, his/her return would be reduced by more than half. Missing the best 30 days over that period of time would actually result in a negative return of over 32% cumulatively.
So our advice is to treat your investment portfolio like your face during the coronavirus outbreak and do not touch! ?
So What CAN we do?
Just because we shouldn’t sell out of stocks doesn’t mean we can’t do anything at all. Here are a few things to consider:
1. Stop taking monthly distributions if you can afford it.
When the prices are down, you have to sell more shares to meet your monthly withdrawal amount. If you can afford to suspend your monthly withdrawals from your investments for a few months while the markets are very volatile, let us know.
2. Consider refinancing your mortgage or other debt.
Interest rates are at all-time lows. Consider whether it makes sense to refinance your mortgage or other debts to lock in these low rates.
3. Consider rebalancing
When markets are volatile, it can put your portfolio out of balance. Talk with your advisor about whether or not it makes sense to rebalance your portfolio and possibly even take advantage of tax-loss harvesting.
4. Consider buying more shares
If you have been holding on to extra cash with concerns over the markets being overvalued, now might be a good time to consider buying more shares, depending on your objective.
5. Enjoy time with friends and family AWAY from the news and social media
While it is certainly an inconvenience to have so many plans canceled, it also presents a great opportunity to take a break from the busyness of life and spend quality time with those you love or do things that you just never seem to have the time to do.
Take the time to reconnect with old friends- on the phone/VP and catch up. Try and take a break from news and social media when you can. Clean out your storage room or closets. Read a good book or binge watch a new show on Netflix. The weather is getting nice in most parts of the country and it’s a great time to start planting your spring garden. Consider taking a “detox” from the news and social media for a little while.
While we are certainly in unprecedented times with this virus, being in unprecedented times is nothing new in and of itself. The world wars in the early 20th century were unprecedented times. The cold war era and oil crisis of the 1970s were unprecedented times. Pearl Harbor and September 11th were unprecedented, as were many other events throughout history. Our country is strong and resilient, and we are confident that we will come through these unprecedented times just as we have in the past.
As always, we are here for our clients during these changing times and will conti