On Monday of this week, stocks were halted after a 7% drop. This triggered the first of three circuit-breakers designed to give pause during moments of extreme volatility. The other two are drops of 13% and 20% of the previous day’s market close of the S&P 500 index that, thankfully, we did not hit on Monday.
With drops like these, the system is clearing itself of over-leveraged investors — that is, investors who may have had their margins called — and panic sellers. Investors are selling for a variety of reasons, fear being one of those.
Just remember, though, for every stock or commodity that gets sold, from a share of Google, Apple or Walmart to a barrel of oil, there must be a buyer on the other side. While one investor is fearful or perhaps even panicking, another investor is feeling the opposite.
The novel coronavirus has led to some historical things happening these past two weeks — in stock market prices, in oil prices and in Fed responses. Unprecedented things are taking place, such as the entire U.S. Treasury yield curve now below one percent for the first time ever, meaning every U.S. bond, from the 3-month T-Bill to the 30-year Treasury, currently yields less than 1%.
Bad for savers but great for borrowers.
Nobody called this market slide. Plenty of prognosticators have been predicting a recession in the last several years, but in doing so they have missed out on the longest bull market in history. This bull market turned 11 years old on Monday, but few were celebrating amidst the market selloff.
Always keep the “risk off” portion of your portfolio for the what-ifs in life. In times like these, having government bonds, CDs or other fixed instruments in your portfolios makes sense. While the 11-year bull market in stocks swayed some investors to go all in with equities, recent weeks should remind them of having a balanced portfolio can pay off long term.
For those investors taking monthly income streams from their portfolios, taking from the less risky investments makes sense now rather than from equities that have been beat down recently.
Getting out now and waiting for the dust to settle rarely works. Unless you have a crystal ball, nobody knows when the bottom will occur, and nobody knows how long this correction will last. Market timing rarely works. You can’t afford to miss the 25 best days in the market, or your returns will suffer.
But to get those 25 best days, they are typically surrounded by the 25 worst days. You can’t have the good without the bad. Anyone who tells you otherwise is misinformed or outright lying to you. Don’t be fooled by promises that seem too good to be true. They most likely are.
There are things that will ring true today and in the future. Keep these recommendations in mind before reacting or, worse yet, capitulating your current investment portfolio.
• Your retirement plan probably isn’t going to change. Locking in permanent losses today, while fleeing to an asset class that yields nothing, is a surefire way to be unable to pursue your dreams tomorrow.
• You may have more risk in your portfolio than you think. If your financial advisor has previously encouraged you to take portfolio loans- you may be in a position where you may be forced to liquidate assets, then you do not work with a fiduciary, you work with a salesman. See above about permanent losses.
• There are things you may want to consider to take advantage of the pullbacks in the stock markets.
o Increase your 401(k) plan contributions at work
o Open an investment account with your financial advisor and have monthly contributions set to be automatic from your bank account or paycheck. If you have cash on the sidelines- market pullbacks are an opportune time to allocate that cash you don’t need over the next couple of years into a strategy that makes sense for you.
o If you are going to make IRA or Roth IRA contributions for 2019 before tax time, now may be a good time to do so.
o Make sure to check to see if your investments are set to reinvest dividends. If they aren’t, they are most likely in a low yield money market account. You will be able to buy more shares of your stocks or mutual funds at lower prices with recent market downturns.
Finally, remember the ABCs — not what you learned in kindergarten but: Always Be Calm. You only have control of one thing: your own actions. All this other stuff will work itself out regardless of what you think or say or do. So be calm. Be armed with context, wisdom, patience, humility and a sense of humor. The end of the world only happens once.
If you have any questions regarding your investments or haven’t put together a financial plan to navigate through these tumultuous times, please give me a call at 515-465-9843 or email me at firstname.lastname@example.org.
o Registered Representative of and securities offered through Berthel Fisher & Company Financial Services, Inc. (BFCFS). Member FINRA/SIPC. Investment advisory services offered through BFC Planning, Inc. Generations Wealth Adivsors, BFCFS, and BFC Planning, Inc. are independent entities.
o Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.
o Please consult your Financial Representative for further information. There are risks involved with investing which may include market fluctuation and possible loss of principal value. Particular investments may not be suitable for certain situations. Carefully consider the risks and possible consequences involved prior to making an investment decision.
o The interpretations and organization of these ideas are the confidential thoughts of Vince Sturm and do not represent the opinions of Berthel Fisher & Co. Financial Services, Inc.