Greetings! I hope this finds you well in every way.
I know that we are all highly tuned into the evolving Coronavirus (COVID-19) and let’s face it, fears over unpredictable rates of contagion and the impact on world-wide economic growth will continue to affect the market adversely until containment is apparent. First of all, I want to pass on two website resources that are credible and informative on the virus and that will allow you to sort through the information the media and draw your own conclusions.
Second I’d like to speak to the economics this current and most recent concern has on your personal finances. Let’s start with some perspective. From time to time as investors, we experience declines in various asset classes because all asset classes are cyclical in nature. This time it happens to be stocks and as stock investors, we should always expect declines just as we expect gains because we can’t have one without the other. As of this writing, the S&P 500 index has declined 13.3% from an all-time high achieved on 2/19/20. A decline of 10% is considered a correction and frankly, I’m surprised we haven’t had one before just in 2020. Think about the headlines so far in 2020 alone; impeachment, possible war in the middle east, China trade agreement and Brexit. Wow! Coronavirus is just the straw that broke the camel’s back. And my point is friends regarding investments and any type of investment, there always is a straw that breaks the camels back. Since 1920 there have been 20 bear markets (20% or greater decline in stocks) and that’s one every 4.5 years on average. They had a median decline of 32.7% and lasted 301 days (Yardini Research). It has been eleven years since we experienced a bear market and so in reality, we’re overdue for one. I’m not saying that Coronavirus will initiate the next bear market 20% decline but I am saying that we should always expect and prepare for a bear market.
There are ways that we can and do prepare to handle market corrections and inevitable bear markets. The first is to invest based on who you are; in other words your actual investor identity. It’s so important. Your identity matches your personal investment objective and the level of volatility you’re comfortable with and willing to experience. The portfolio you own should always match your investor identity. Second is to always pursue a diversified portfolio of stocks, bonds and alternatives. And third is to maintain appropriate cash reserves to avoid having to firesale portfolio assets at an inappropriate time.
If you are a client of our firm you’re familiar with the planning and preparation I addressed above. If you are not and have questions, concerns or feel that I can help in any way don’t hesitate to call.
Jeff Christian CFP, CRPC
It takes as much energy to wish as it does to plan.