I’ve sent out several emails as the market began the higher-than-normal volatility. Now I want to take a moment to give you more detail on what I see happening about the coronavirus and its impact on the financial markets, and, ultimately, on your personal financial situation.
As I’ve shared over the last year, we are in a market/economic phase I call 9th Inning Investing…which means the market and economy are topping, we don’t know how many more innings there are left in this “game” and we don’t know what the catalyst for ending the game will be.
Going into this New Year, many stock markets around the world were trading near all-time highs including major indexes in the US, Canada, UK, and Australia. In fact, since the end of The Great Recession in 2009, many stock markets around the world have seen their prices double or even triple in price. In the US, for example, the S&P 500 index, a broad measure of the stock market, saw its price increase from under 700 in March 2009 to over 3,300 this month, according to data from Yahoo! Finance.
Of course, we know markets don’t go up forever. Sometimes, they just flat-line for a while as company earnings catch up with stock price valuations. Other times, they see violent drops that make big headlines like the “Black Monday” stock market crash on October 19, 1987 that was felt around the world.
Today, the coronavirus is triggering a steep stock market selloff around the world. As of the week ending February 28, major market indexes in the US, Europe, Japan, and Australia were down 10% or more from recent all-time highs. On Monday, March 2, we had a strong rally in the US that recouped some of those losses. Today, after the Fed rate cut of 50 basis points, we are trading down as much as 500 points.
Top investor Warren Buffet famously wrote, “It's only when the tide goes out that you learn who's been swimming naked.” Well, the tide is going out but the good news is, this is not a surprise to me. We've been preparing for this economic phase for over a year...in my updates to you and in your portfolio construction. Your financial well-being is always on my mind and while I know we are facing a market top, we never know what may trigger the final sell-off.
Three Keys
Here are three keys for you to keep in mind as we work through the unfolding virus situation and its impact on you and your financial situation.
First; fear is a natural reaction. We’re human and as humans, we’re hardwired to react to situations that threaten us. In this situation, we have a double whammy of fear. There’s the virus that can cause us bodily harm and the market reaction that can cause us financial loss.
Related to the virus, nobody knows how bad the situation will get. All we can do is take appropriate precautions and trust that researchers will find a way to eradicate it sooner rather than later.
By contrast, our reaction to the financial markets is something within our control. It’s no fun seeing your portfolio drop but it has been a 10-year market recovery and it is easy to forget what it is like to be in full-blown market upset. Yes, we know market volatility is normal and expected. The key is to zoom out and look at the long-term big picture.
Your investments are designed to support your long-term objectives and be the “engine” to your financial plan.
The cash we hold is your protection for today’s needs. And just like in farming, where we know there will be some lean years when Mother Nature doesn’t cooperate and other years when there’s a bumper crop, the financial markets are similar. Financial markets react to shocks to the system and we are seeing one now.
In situations like this, my job is to help bring perspective; to help you see that swift market drops are not unusual. AND, to help you capitalize on the down days when risk is lower. It is never good to stuff down feelings of fear and yes, the headlines are scary. They can bring our “fear” instincts to the surface and remind you of other times when you experienced fears. The best response is to acknowledge what you’re feeling, reach out to me often and have confidence that I am here for you.
Second: I am closely following the situation and will adjust as warranted. Sometimes, situations like this create opportunities for you and there will be at time, when as prices drop, my trading team at First Affirmative and I can very efficiently “re-balance” your portfolio and shift your asset allocation. This means we might be able to “sell one thing and buy another” as a way to get your portfolio back to the mix that is most appropriate for you. Today, bond prices are rising, and the cash you have, and bonds, will give us a source of dollars to go into stocks.
Third, be prepared emotionally for more volatility. In today’s financial markets, many trades are triggered automatically by algorithmically driven computers. Once certain “technical levels” are reached, these computers, often run by large hedge funds, start selling (or buying) indiscriminately. And many of them are programmed to “trigger” based on the same technical levels. This “piling on” can lead to very eye-popping volatility—both on the downside and upside. I can see the technicals as they unfold, by the hour!
Keep in mind that in the short-term, market movements can be heavily influenced by fear and computerized trading, while in the long-term, they tend to reflect broader-based economic trends. Your portfolio is here to fund your future…to provide the “salary” that replaces your work-day-dollars. As investors, not traders, the challenge is to not let the difficulties of the short-term prevent us from reaping the potential benefits of sound, long-term investing.
Your financial well-being is my #1 objective. I’m working behind the scenes, with First Affirmative and my other resources, to understand which risks might trigger a change in your portfolio. I will continue to monitor this unfolding situation and recommend actions as appropriate.
If you have any questions about your specific situation, you know I’m here for you! Please reach out. As always, I’m here for you and your family, and I always am humbled by your trust. Thank you for your continued trust and confidence. If you want some history, and perspective…here are links below for you to dig into!
Best,
Julie
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