February 29, 2020

It has been a tough week with the stock market in correction mode amidst fears centering on the Coronavirus.  At times like these, I think it is healthy and necessary to take a step back and look at the big picture.  With that said, many folks battle with the thought of “is there something that I should be doing?”.  Here is my advice:

  1. Stick with your long-term strategy.  Behavioral finance teaches us that most investors make the wrong decisions in times of anxiety.  While things may seem bad due to the magnitude and suddenness of the recent decline, we are simply back to stock market levels of late fall 2019.

  2. If sticking with your long-term strategy doesn’t feel like enough –
    1. If you are retired and taking income from your assets, avoid taking excess distributions beyond those planned.  It is best to reduce distributions when your overall portfolio values are down.

    2. If you are pre-retirement, save more if you are able.  That could be as simple as adding 1% to your 401k deferral percentage.  The result will be you buying more of the market at lower levels.

These concepts may seem overly simplistic, but we have planned for times like these.  Your portfolio and overall plan are prepared for stock market volatility.  The biggest thing that we can control is investor behavior, spending, and saving patterns.  If you desire a more detailed analysis of the Coronavirus and potential economic and market impact, please continue to read.

From a stock market perspective, the market is struggling to price in Coronavirus and its short-term impact on the global economy.  There is certainly a short-term impact as global supply chains have been interrupted (for example, companies like Apple receiving components from China).  Furthermore, travel and tourism has slowed as some countries have imposed travel restrictions and growing numbers of people avoid traveling due to fears over increased risk of infection.  It is not abnormal for a drop so sudden and dramatic to cause anxiety amongst investors.  To put things into context, however, the stock market is simply back to levels from late September of last year.  The market is likely to remain highly volatile and news driven as we work our way though this time of uncertainty.  The likelihood of the Fed doing another rate cut has increased dramatically which may provide some relief to the stock market as well as additional opportunity for home purchasers and/or homeowners to refinance debt.  The important thing for investors to do at this time is to remain devoted to their long-term plans.

From a portfolio management standpoint, we have been spending lots of time talking to clients about risk in our previous review meetings.  Our focus on risk management comes to fruition in times like these.  For sake of simplicity, I with offer insight through 2 lenses.

For retirees, soon to be retirees, and others utilizing more conservative strategies:

Times like these are why we hold bonds.  Folks that are taking income will continue to do so from the bond portion of their portfolios.  Thus, short-term volatility in the stock portion of the portfolio will have little long-term impact.  Stocks are long-term investments and will be a future source of income.  We are not depending on stocks in the short-term to provide income which allows us to let stocks rebound from corrections.  Of course, bond holdings have low correlation to stock markets in general and most bond classes have appreciated this week as funds have flowed into safer assets.  This has resulted in the 10-year treasury bond dipping to below 1.2% as of the writing of this article.  Overall returns have been buoyed by bond holdings. 

For more aggressive investors:

In my practice, the more aggressive investors are also the savers.  While it is never easy to see account values decrease, short-term volatility provides opportunity to buy stocks cheaper.  Those saving periodically to 401k plans, IRAs, or even after-tax accounts are buying in at much lower market levels today than they were last week.  When we look back on this time 10 years from now, it is highly likely that those funds invested now will provide better return than those invested last week when things felt much better. 

In closing, I encourage clients to take the news in stride and focus on their long-term plans.  To put a positive spin on things, the market is back to more reasonable levels.  We along with our money managers look at times like these as an opportunity to buy attractive stocks on sale as long-term additions to portfolios.  We will also look to rebalance portfolios strategically as they drift far from their target allocations.  Just as we sold stocks last year to lock in some gains and reduced risk overall in the types of stocks we owned, there will be a time when it makes sense to sell some bonds and buy stocks at a lower level.  Proper portfolio management allows us to navigate times like these in a prudent manner.  As always, anyone who has questions or concerns on their individual plans, I encourage you to reach out to me directly at or 704-865-2900.