Note: Life isn’t easy at the moment for any of us.  We have financial concerns, as well as very real health concerns.  While this post will focus on the “investing” side of things, please don’t think for a minute that I’m blind to the seemingly more pressing concerns surrounding our health and the health of loved ones as covid19 continues to spread in the US.   I’ve read every article on the subject that I’ve found and opinions are varied.  One theme – take steps to prepare, not to panic.  Do what you feel is best for your situation.  Consult accredited sources like the CDC and Surgeon General.  And most importantly, take care of yourself and those you love.

If you’ve been anywhere near a financial headline in the past week (and especially today – March 9, 2020), I am sure you are feeling a level of anxiety and concern.  That’s a perfectly justified reaction.  The level and velocity of these moves in equity prices, interest rates, and now energy prices are jarring and unnerving.

As I wrote about in my last blog post – and will write about for as long as I’m investing (and helping others do the same) – in times of heightened uncertainty and noise, the only productive exercise is to remind yourself of what we know for sure. Here is list of eleven truths I’m using to guide myself and clients thru this time in the markets

1.       Your plan was designed for you – if you’re a Windermere client, we have built a financial plan specific to you and your situation.    We’ve taken into account your age, your earnings trajectory, your risk tolerance, your liquidity needs, your life timeline, your goals at various life stages, and many other factors.  We’ve seen the plans work for you and your families for several years.  We have talked about various “what if” scenarios.  We encourage you to remember that and resist the urge to throw that plan away during this time of stress.  Does locking in permanent losses today and fleeing to an asset class that won’t grow and will yield nothing (cash) allow you to reach your longer-term goals?  Likely not.

2.       Your liquidity needs have been factored into your plan – As noted above, Windermere clients all have a financial allocation and plan built for them.  We have routinely evaluated cash balances (cash kept in the bank) and confirmed you have an emergency fund (in the event of an unforeseen expense or a job loss).   We have discussed near-term liquidity needs (cash needed anytime in the next five years) and worked that into your plan (via a combination of stable interest & dividend stream, allocations to cash, fixed income, and market hedges).  While your total “number” on the page may have fallen, your liquidity is sound and your daily life (both today and several years from now) should not be disrupted.  And as a result, you won’t be forced to sell at these levels (see #4)

3.       Remember what an investment represents – Fundamentally, an investment is an ownership interest that affords you some future benefits in exchange for your current capital.  A fixed income holding is a promise made (by a business, a government, a municipality, etc.) to repay your principal and a stated rate of interest.  An equity holding is a share of a businesses future cash flow and earnings.  (And an ETF or a mutual fund are a collection of individual fixed income and equity holdings).  Each trading day, the market prices these ownership interests based on countless factors and we can watch their every move on our screens.  But beneath all that noise are businesses – collections of individuals and technologies that are adapting, innovating, planning, strategizing – all in an effort to maximize the return on the invested capital (including yours).  Will recent events such as covid19 and oil prices impact the businesses you own? Most likely.  Will the events be everlasting and permanently impair the businesses and their future ability to advance and grow their capital?  History would suggest this is highly unlikely

4.       Nobody predicted this (despite what they say) – Most news shows and articles I’ve digested today include at least a few commentators patting themselves on the back for having seen this coming.  Make no mistake – no one predicted this.  Did you have a “hunch?” Maybe.  Did you feel the markets were too good to be true? Perhaps.  But could you (or anyone else) have foreseen this full result? Unlikely.  Letting a “would have could have” dialogue run on repeat isn’t productive.  Let’s talk thru it and learn from it.  Let’s decide what to do now for your specific situation. But punishing yourself for actions not taken is not a productive use of your time.

5.       All in or all out are NOT investing strategies – If you are engaged in the dangerous exercise of going all-out of the market in times of stress and then planning to go all-in when you believe things have settled down, you are not investing. You are gambling on moments in time. You are trying to be right twice (predicting the bottom as well as the top).  We don’t recommend this practice.  There is too great of a price to pay as illustrated by this chart that shows what happens to returns if you miss the top 25 trading days. 

6.       Tops are just as well disguised as bottoms – Continuing with the above message, seeing a top in a market is an impossible feat but I would argue that seeing a bottom is even harder.  An eerily relevant example of this is this exact date (March 9) eleven years ago today.  March 9, 2011 marked the end of the last bear market.  The market stopped going down that day and there was no clear reason.  There was no “one” event or one major market signal.  Virtually no one felt good about markets and hardly anyone thought we had reached a bottom.  And yet, less than three months later, the stock market was up 41%.  Will history repeat itself exactly? Of course not.  But is it possible that it will “rhyme”?  I believe so.

7.       Not all companies (or indexes/funds) are created equal – Each public company (and each fund/ETF that holds various companies) are unique.  When markets decline seemingly in mass, it is a great opportunity to take stock of all of your positions, evaluate if there are some you don’t own that offer a better risk/reward at these levels, and consider making some replacement trades. (Rest assured, this is exactly what we are doing on your behalf on an ongoing basis – including during these volatile times)

8.       You don’t have to “do” anything – Market moves like this invoke our “fight or flight” instincts.  It’s visceral.  It’s human nature. We’re hard wired to run from fear and pain.  So the urge to do something (an urge to go to cash and come back when things settle down) is very real.   At least then you’ve taken action and done something, right?.  If you are reading this and are feeling this urge, please go back and reread #5 and #6.  Sometimes the best action is no action at all

9.       If you need to do something, pick from this list – Yes, the past few weeks have been punishing to your portfolio value.  However, there are present day fact patterns that may help your future cash flow. So if you are compelled to act, consider something from this list

a.       Refinance  – As the yield curve falls, expect mortgage rates, home equity line, installment loans, and other rates to fall as well.  Review your debt and consider refinancing, remaining aware of any associated fees.  Note:  Mortgage rates remains above “expected” levels due to demand.  Many sites, such as Bank Rate, are advising caution acting immediately as rates will likely come down in the coming weeks in line with the current yield curve. However for many, presently available rates may represent meaningful savings

b.       Front-load 2020 funding –  If you are an investor in an accumulation phase, consider adding to your portfolio at these lower levels.  Is the “bottom” in?  No one knows.  But with market prices down 20%, you could consider adding some (or all) of the capital you planned to add in 2020 – such as 401k contributions, IRA contributions, 529 plan contributions, etc. 

c.       Roth conversion – If you have a majority of your retirement savings in pre-tax accounts, you could consider a Roth conversion.  Yes, the funds you convert are subject to income tax – but if we get an equity rebound from these levels, that appreciation (which is free from tax once in a Roth) can offset the tax.  Of course, you need the cash to pay the taxes and there is a chance stock won’t rebound in the next day, week, or even month.  Best to discuss this for your specific situation (rest assured, we will be bringing it up to those of you we feel it may be a fit for) 

d.       Revisit your list of those that got away – We hear from investors all the time about stocks they wish they would have bought at $x.  You likely have a similar list. I know I do.  Pull it out and check the current trading prices and fundamentals of the businesses that “got away”. Maybe there is something worth investing in

10.   Investing remains relative –  We’re sometimes tempted to look at things on an absolute basis.  Is this option good or bad?   Investing should be a relative exercise – given the range of available options, which is better (or worse) for my specific situation.  Said another way, you have to consider the cards you’ve been dealt and then decide the best ones to play.  At current levels, what investment options are better for you and your long term goals?  It’s not a simple good/bad/all or nothing strategy.  It’s a careful evaluation of the available alternatives in connection with your longer term plan.  Again, we are continually doing this on behalf of our clients and stand ready to review this with you at any time

11.   You are not in this alone –  Fear and uncertainty thrive in isolation  Left to your own thoughts and worries, it’s highly likely that you will increase your level of anxiety and concern.  We are not here for the easy times in the markets when everything is working.  We are here for times like this.  We are here to walk thru points 1-10 as they specifically relate to you. We’ve been in touch and will continue to be – but please, reach out to us as well.  Any time. Any question. Any thought.  You don’t have to do this alone. You were never meant to.

Invest on and take good care of yourself and others,

Pam