With the Dow Jones Industrial Average dropping approximately 20% in a 4-week span, I think it is important to reach out to our Waymark clients personally to discuss this latest, gut-churning correction in the market and answer some of the common questions we have received.
1) Should I sell everything and wait until the market recovers?
Answer: No, unless you robotically set a strict price on when you will reinvest back into the market. Most investors pat themselves on the back when they liquidate their portfolio prior to a big market crash. BUT THEY’RE ONLY HALFWAY THERE. To profit from this liquidation, they must reinvest back into the markets at a point lower than the day on which they sold. For most people, that is extremely difficult to do because the news on the day they are reinvesting back into the markets most definitely will be worse than on the day they sold!
Historically speaking, investors have done a terrible job at this. Every year Dalbar, Inc. releases data on how well the average mutual fund investor performs compared to other asset classes.
For the 20-year period between 1999 – 2018, the annualized return of the S&P 500 was 5.6%. The annualized return of the average investor was only 1.9% (Source: J.P. Morgan Asset Management; Dalbar Inc.). The lesson: the average investor does a terrible job at timing the market.
2) Should I buy individual stocks from industries that have gotten hit hardest like the airlines and energy?
Answer: Maybe. The airlines and oil companies have lost billions of dollars as a result of the coronavirus.
Many savvy investors ask, “Is this a good time to buy a blue-chip company when it is selling at a steep discount? People will not stop flying and/or driving their cars all together because of a temporary virus scare.” So there could be a great buying opportunity right now. With that said, no one knows the full impact of the coronavirus, and it may be several months or even years for an investment in the airline and/or oil companies to turn a profit. Tread lightly, and if you choose to invest, invest only the amount you can lose without jeopardizing other long-term goals.
3) How much have I lost and, more importantly, will I have to adjust anything to achieve my financial goals?
Answer: For most Waymark clients, you’re okay. Of course, we would have to look at your personal portfolio performance and match that up with the goals we have discussed to confirm this, so feel free to call the office to schedule a call/web conference to discuss. But with just about every client we have analyzed, their investment performance in 2019 was fantastic, and this recent pull-back has simply returned a portion of the profits they earned in 2019.
I will get on my soapbox for a moment. I went into this business almost 20 years ago in 2001. In fact, I was studying for my basic investment licenses on the morning of September 11th and was released from class after the second plane hit. The markets were terrible for almost three years at the beginning of the 2000s, and then we had the Great Recession of 2008. So in the first seven years of my investment career, 3-4 of those formative years were spent reassuring clients that everything would be OK. But on certain days, that was not easy to do. So I vowed I would never abandon basic diversification principals and even incorporate the use of annuities, which some financial “experts” loathe.
So most of my clients have good exposure to the US stock market, and yes, they have been negatively affected by this. However, they also have exposure to bonds which are mainly positive for the year, annuities which feature guarantees, and alternative investments, which seek to perform independently of the equity and fixed income markets. The balanced approach can lead to underperformance in good markets as we have seen over the past 11 years, but it tends to reduce the big performance dips during the tough times like now.
4) Is there anything I should be doing right now?
Answer: Yes! The beauty of capitalism is that whenever there is a disruption, there tend to be opportunities created. If you want to explore them and whether it makes sense for you, please let us know, and we can schedule a call to discuss.
If you’re a relatively young, long-term investor, don’t even look at your account balance, or the news of this week’s latest stock-market fall. It is too difficult at this point to predict the market’s levels years into the future when young investors will be cashing out accounts such as their 401(k)s. Money that people are saving for short-term goals shouldn’t be invested in the market.
Many Americans would do well to examine their budgets — if they even have a budget at all. Some obvious places in the budget to make cuts: cable TV, cellphone plans, video streaming subscriptions, or other monthly subscriptions that you may have forgotten about(1). Is it time to cut out that extra movie channel that you don’t watch? Can you get a better deal from another operator? Some people may be reluctant to go to a restaurant, due to fears relating to the coronavirus and being around people who are asymptomatic. Luckily cooking meals at home is generally less expensive than eating out, and for some, it’s an effective stress reliever.(2)
For help with your budget, feel free to reach out to our colleague and December 2019 webinar guest, Melissa Tosetti. Melissa’s work is in helping clients organize and streamline their day-to-day finances. You are under no obligation to use the services of Melissa Tosetti, and may choose any qualified professional to provide any of the services described above.
Melissa Tosetti and their services are not affiliated with LPL Financial and Waymark Wealth Management. Through her Spending Plan & Implementation process, she helps clients make more money for their long-term goals while balancing the life they want to live today. What I like so much about Melissa is her positive take on personal finance. It isn’t about not spending. It’s about being purposeful in your spending.
Personally, the World Health Organization (WHO) recommends people limit the amount of time “you and your family spend watching or listening to media coverage that you perceive as upsetting.” It also recommends gathering information about the virus from a credible source like the WHO or a local public health agency, such as the CDC. Social media can be the least reliable source of credible information. Financial advisers say the same is true for those who are worried about their 401(k) or their investments in their favorite stocks.
Finally, if your local supermarket/warehouse store has exhausted its supply of hand sanitizer, make your own! Anne Marie Helmenstine, who holds a Ph.D. in biomedical sciences, posted a tutorial(3) online for how to make it, It may take your mind off the plunge in the stock markets on Monday, although some health experts say homemade versions may not be very effective(4). Here are the ingredients and equipment you would need:
2/3 cup 99% rubbing alcohol (isopropyl alcohol) or ethanol
1/3 cup aloe vera gel
8-10 drops essential oil, optional (such as lavender, vanilla, peppermint, grapefruit)
Bowl and spoon
Recycled liquid soap or hand sanitizer bottle
These are the times people need to lean on their financial advisors, so again, feel free to call the office to discuss your personal situation.
The Waymark Team
Brendan is the Managing Director for Waymark Wealth Management. He has extensive experience in comprehensive wealth management. His focus includes retirement planning, behavioral finance, investment portfolio construction, education funding, insurance & risk management, taxes, charitable giving, and estate planning. Brendan has an ability to take clients' complex visions and distill them down to simple action plans, helping them move from where they are today to where they want to be tomorrow.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
No strategy assures success or protects against loss. All investing involves risk including loss of principal.
Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.