The COVID-19 (Coronavrius) pandemic has caused unprecedented changes in the stock market, and we believe that this is when experience, and the perspective that comes from experience, is particularly valuable.
Fear and anxiety have concrete impacts on the markets and on your decision-making. Look to expert analyses and historical trends to give you a sense of context so that you can feel confident about making financial decisions according to your goals and overall strategy, not temporary emotions.
While “stay and hold” may be the message for most investors, this doesn’t always apply to everyone. Those with complex portfolios may be interested in making some strategic decisions now and taking the time to develop a plan for continued market turbulence.
Below, we’ve included some recommended actions you can take now, as well as broader insights from the financial advisory firms on our platform.
Actions you can take now to take advantage of market turbulence (Offense):
- Tax loss harvesting: Minimize taxes by selling investments that have lost value
- Convert pre-tax retirement dollars into accounts where it grows tax free
- Overfund your retirement accounts
- Look for buying opportunities
- Explore lower rate options for student/home/auto refinancing
Actions you can take now to protect against the negative effects of market turbulence (Defense):
- Sources of funding: Prioritize the cheapest
- Property mortgages (3%)
- Investment margin lending (4-6%)
- Consumer lending platforms (7-18%)
- Credit cards (24%+)
- Permissible withdrawals
- Use the ability to take a distribution of “accidental” automatic contributions without penalty
- Cut personal expenses
Klingman & Associates, LLC: “Event Driven” Bear Markets
“These are anxious times on many levels. While we spend most of our time helping you manage your wealth, we all know there’s nothing more important than our health. As we said in the call that we hosted last week, the more extreme the responses are to try to stop the spread of this virus, the more severe the short-term economic impacts will be. We believe the steps taken by governments and companies around the world will significantly impact economic activity over the coming months. Beyond the severity of the economic impact is the question of the length and whether there might be any permanent change in consumer or economic activity.
“Since 1926, there have been eight bear markets which have ranged in length from 6 months to 2.8 years. What makes this bear market stand out is how quickly markets fell from the all-time high. In past bear markets, the average number of days from peak to 20% decline has been 255 days with the median being 156 days. The recent market selloff reached this dubious achievement in just 17 days. Historically “event driven” bear markets, that is market declines that were not driven by economic recession but instead triggered by events like war, oil price shocks or emerging market crises, have been of shorter duration and tend to rebound to previous highs more quickly. We have never had a bear market triggered by a viral outbreak event, but it certainly seems to fall into that category.
“So what are we doing? Because every client is assigned to a target asset allocation model consistent with their goals, risk tolerance and time horizon, we are not forced to sell stocks in this environment. In fact, in the last two days many clients have now become under weighted to equities, and in the days and weeks ahead, we expect to use cash and investment grade fixed income proceeds to purchase equities at what we believe are discounted prices. We will also look for tax loss harvesting opportunities in select accounts to use against any potential future gains.”
Source: (March 12, 2020) Email
Summitry Wealth Management: Advice for Long-term Investors
“It is with a focus on the long-term that we recommend keeping these three things in mind:
- “The intrinsic value of any business is based on its future earnings, from now to perpetuity. That value will largely depend on earnings that will be generated over the next 20, 30, and 50 years, and not just the next 1-2 years. Consequently, we believe any pressure on earnings in the short term, regardless of the cause, will have a minor impact on the intrinsic value of a durable business. For long-term investors, the next decade is more important than the next year.
- “At Summitry, we invest in companies that we believe are competitively advantaged businesses, which are being led by capable management teams, and benefit from strong balance sheets. As a result, we believe the businesses we own are well prepared for any challenge and are prepared to weather any storm that might impact their respective industries because of the Coronavirus.
- “Fear is a normal component of well-functioning markets. Fear could lead some investors to overreact to certain news, which might create bargain prices. For long-term investors, market fear is an opportunity to scoop up great businesses at attractive prices.”
Source (March 1, 2020): https://summitry.com/blog/2020/03/03/checking-the-health-of-your-investments-amid-coronavirus/
Auour Investments: Selling with Strength
“To state the obvious, this economic downturn has been sharp and painful to many. Though undoubtedly still painful, it has been less so for our clients. We have been warning of growing instability within the financial markets and also preparing to weather it for quite some time. Although no one likes to see losses in their investments, the year-to-date losses our clients have experienced as of today have been far less than their respective market benchmarks (in many cases it has been 40-70% less).
“Periods of immense volatility, even when we are defensively positioned, can be uncomfortable. People often feel frightened and out of control. The headlines are scary, and every day the news is refreshed with even worse news. The market plunge seems to confirm people’s deepest fears. During this time, we would like to remind all readers of one of our favorite Warren Buffett quotes, “I simply attempt to be fearful when others are greedy and greedy when others are fearful.” We have crossed that chasm, as the market participants have swiftly turned fearful… and with conviction!
“Selling after the market’s drop requires one to have a conviction that the worst is not past. Unfortunately, when people are wrong-footed, they tend to sell out of regret, not from a position of strength. We made certain moves out of the market last year in late August. In times like this, hindsight wishes the moves were even more significant, but investing is an imperfect science, especially over short time periods.
“Although it might be tough to see at this moment, we remain optimistic about the future. Households are in a much stronger state than they had been during the last bear market. We have a large generation of workers that are young and will drive decades of growth. And market valuations are more reasonable now. This downturn, like all others in the past, will end with a strong recovery. We stand in a better position now to take advantage of it. Remember, the goal is to sell high and buy low.”
Source (March 16, 2020): Email
- Tax Payment Deadline Extension: Planning for 2020’s COVID-19 (Coronavirus) Impact
- How a Financial Advisor Can Help During Market Turbulence
Klingman & Associates, LLC: Investment advisory services offered through Klingman & Associates, LLC. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Klingman & Associates, LLC is not a registered broker/dealer and is independent of Raymond James Financial Services. Investors should consider the investment objectives, risks, charges and expenses of an investment company carefully before investing. The prospectus contains this and other information about the investment company. The prospectus should be read carefully before investing.
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