March 13, 2020

My current thoughts

Author: Marty Moore, CFP®

I think we can now safely say that the Coronavirus here in the US will get worse before it gets better.  But I do believe that it will get better and will be brought under control in a relatively short period of time.  I’m no medical expert, of course.  I know no more about this than anyone else.  It’s just my personal belief.

It’s possible, maybe even probable, that in the coming days and weeks that the financial markets remain on edge and continue in a downward trend.  Based on my experience over 30 years and all I have learned over time I feel quite sure, however, that a recovery will come.  I, nor anyway else, can know when the recovery starts though.

This time may truly be different, that’s always a possibility, but I just don’t see why it would be.  I can’t make a logical case that it would be different than past periods that we have experienced – 2008 financial crisis, 2000-2002 tech plunge, 1987 market crash, 1973-1974 oil crisis.  It’s hard for me to believe that our economy, the most vibrant economy the world has ever known, would remain depressed for years to come.  That scenario, to me, has a very low probability of happening.

I have a large percentage of my overall net worth invested in stocks in the same funds that you are invested in.  I’m not selling now even though I know that further declines may come because when the recovery does come I want to be invested to the same degree I am now in order to benefit.  I have no confidence in being able to sell now to protect from further declines and buy back at the right time down the road.  Thinking I can get this strategy even partly right would be wishful thinking.

I think there are three options, with my thoughts on the pros and cons of each.

We can reposition your accounts conservatively, selling all equity funds and reallocating to money market funds and short term bonds.  This will help avoid further declines.  But it will also result in not participating in the recovery when it does come.  The market can move up just as fast as it moves down and it can do so in such an anticipatory way that there is a likelihood that when it looks like the worst is behind us the market will have already moved up strongly.

Option two would be to hold steady and maintain your current investment approach.  It’s not easy, I realize.  It means suffering through this difficult time and further declines as they may come.  But, if you have a solid long-term investment plan in place, I believe it provides the best opportunity to participate when the recovery does come.

Option three would be look at the current market as an opportunity to purchase equities.  As I am writing, the S&P 500 is down over 25% from its recent high.  If history is any gauge and if you believe a recovery will occur, you might conclude that this quick and severe market decline presents an opportunity to buy stocks or diversified equity funds at a price far less than just a few weeks ago.  However, as it does appear that the Coronavirus problem will escalate for some time it is quite possible that there could be an even better opportunity in the coming days and weeks.  Waiting could pay off but, as I have stated, rebounds can happen quick and well sooner than you might expect.

Please don’t hesitate to call or schedule a time for us to meet.  If we haven’t done so already, we can also do detailed long-range financial projections to see where you stand, even after the current market slide, for retirement.  Whether you’re still working or already in retirement this can often be helpful in determining if you have the right investment plan in place.  Let me know if this would be of interest.

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In my Newsworthy post two days ago I included a comment by financial advisor Josh Brown:

“The system is clearing itself of over-leveraged players, forced liquidators and panic sellers.”

No doubt this is happening.  When the market drops by percentage points in a day there are obviously more people rushing to sell at any price than there are those willing or wanting to buy.  This dynamic almost assuredly will shift when the selling pressure begins to wain which then gives way to opportunistic buyers who have been waiting for “the dust to settle.”

Markets like we’re in now are tough… maybe that’s an understatement.  But we’ve been here before. And we’ll come out of it again.

As always, please call and let me know your questions and concerns.

Marty

In the News, Market Volatility

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