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Market Update - Keeping Perspective Amidst the Headlines


Unless you gave up electronic devices for Lent, you know that the spread of the coronavirus and the corresponding fear that’s been created is front and center on all news media outlets.   The barrage of headlines has sent the market on a wild ride over the past 2 weeks - with the week ending Feb 28th seeing a decline on the Dow of -12% and last week seeing the market swing up and down daily 3% to 5% but actually squeaking out a slight gain for the week.   Interest rates have nosedived, with 10-year Treasuries dropping below 0.4% and 30-year notes falling below 1%, resulting in existing bonds increasing in value.  Over the weekend, Saudi Arabia and Russia further complicated matters by flooding the oil markets with increased supply in a time where demand was already an issue due to the coronavirus.  The supply glut sent oil prices and energy related stocks tumbling.


Perspective is difficult to maintain as an investor when volatility sets in.  The Dow, S&P and NASDAQ all recently reached all-time highs.  While we’re not minimizing the sharp decline, we also know that it’s unreasonable to expect the market to move straight up.  We came off a year (2019) where most investors experienced double digit returns and while a decline doesn’t feel good, retracting is something to be expected and a normal occurrence.  


Instead of drowning you in historical data and opinions, this is a great time to revisit the foundations of portfolio management and prudent investing. As a firm, we are proud of the conservative approach we take to investing, which is a short way of explaining how we address each of the following:


Time Horizon – Simply stated, if you’re planning to use ALL of your money in the near term, you likely shouldn’t have it invested.  For someone planning for retirement, your time horizon for investing isn’t the day you retire and start taking draws from your account, it’s a 15-30 year period.  Equity investing is a long-term proposition where recommendations are made based on several years out, not days, weeks or months.


Asset Allocation – The basis of any well-crafted investment plan involves a form of asset allocation - or - the blend of stocks, bonds and cash.  This obviously dictates your risk level and corresponding upside returns in the good times.  While stocks have taken a sharp decline, bonds have seen a rise in value as interest rates drop.  As stated above, now is a great time to revisit your overall allocation.


Cash Flow – many of our clients invest in high quality, blue chip stocks and stock funds that pay growing dividend payments.  The purpose of this form of investing focuses on accumulating shares or generating cash for distributions, regardless of how the market is performing in the short run.  Reinvestment of dividends allows you to acquire more shares when prices fall.  If you are utilizing the dividends to fund distributions, it minimizes the probability of having to sell investments at depressed prices to fund the distributions.


Let’s circle back to perspective.  As an investor, you aren’t able to control the stock market, interest rates, oil prices, etc.  The things we can control are listed above, and if done properly, historically have led to the desired results in the long run.  We’re not minimizing the fact that it doesn’t feel good to open a statement or pull up your account online and see a decline - as a fee-only firm we feel the impact as well - but it is also important to take a deep breath and not be a prisoner of the moment (in good times and not so good).


If you have any specific concerns regarding your accounts, by all means we want you to reach out to us.  Feel free to email or call anytime, we’re here to help you make good decisions with your investment portfolio.