This week I want to provide an update on the current market volatility, discuss important things to keep in mind during this uncertainty, and share 3 action items I am recommending to my clients.
Listen to Episode 17 Here:
Update on Current Market Volatility
Short-term pain is the price we pay for long-term gain….
I have a few thoughts related to the coronavirus and its impact on the financial markets. I’m a bit hesitant to spend too much time on this market decline since, as you all know, we’re in it for the long haul, and declines are a feature of the markets, not a bug. They can’t and won’t go straight up.
But rather than sticking our heads in the sand like an ostrich, I will address our current situation. Fear is a natural reaction. We’re human, and as humans, we’re hardwired to react to situations that threaten us.
In this situation, we are taking hits on two fronts. There’s the virus that can potentially cause us bodily harm and the market reaction that can cause us financial loss.
Starting off 2020, many stock markets around the world were trading near all-time highs including major indexes here in the U.S.
During these past couple of weeks we’ve witnessed rapid declines around the world. Major market indexes in the U.S., Europe, Japan, and Australia are down 10% or more and have since been bouncing around with some large rallies followed by more large declines.
The good news is, as stewards of your financial well-being, we prepare for situations like this, even though we never know what may trigger them or how long they may last.
A Few Things to Keep in Mind
Related to the virus, nobody knows how bad the situation will get. All we can do is take appropriate precautions and trust that researchers will find a way to eradicate it sooner rather than later.
Now is the time to focus on what we can control as opposed to what we can’t. We don’t know what the financial markets are going to do, but you can control your reaction to them. No one likes to see their portfolio drop (I certainly don’t!), but we also know market volatility is normal and expected.
Your investments are designed to support your long-term objectives, not today’s needs, unless of course, you are living off your investments. In which case, if you work with my firm, these needs have already been addressed with holdings in your war chest.
I like the analogy of financial markets and farming. Farmers know there will be some lean years when Mother Nature doesn’t cooperate and other years when there’s a bumper crop. We have to take the good with the bad.
Financial markets react to shocks to the system, which we are now experiencing.
In situations like this, it is my job to help bring perspective, to help you see that swift market drops are not unusual. Yes, the headlines can be scary, and they can bring our “fear” instincts to the surface.
It’s okay to acknowledge what you’re feeling. Please reach out if that would be helpful, and have confidence that we are on top of the situation.
I’m closely following the situation and will adjust as warranted. Sometimes, situations like this create opportunities.
3 Action Items I am Recommending to Clients Now
1. As prices drop, we have an opportunity to “rebalance” your portfolio and shift your asset allocation. This means I might be able to sell one thing and buy another in order to get your portfolio back to a desired mix that is most appropriate for you and in alignment with your investment policy statement that we went through together. I have been rebalancing some accounts.
2. We are doing Roth IRA conversions now rather than in the 4th quarter for those who are ready for that in their plans. These lower stock prices allow us to convert before-tax money to after-tax money now in what we hope to reap later in tax savings.
3. If clients are willing and able, we are recommending they fund their Roth IRAs now. As Warren Buffett would say, “Stocks have gone on sale and that is when we like to buy!”
We need to be prepared emotionally for more volatility. In today’s financial markets, many trades are triggered automatically by algorithms & computers. Once certain “technical levels” are reached, these computers, often run by large hedge funds, start selling (or buying) indiscriminately.
Many of them are programmed to “trigger” based on the same technical levels. This “piling on” can lead to the very large swings in the markets we’ve been witnessing lately, both on the downside and upside.
Your financial well-being is our number one objective. We continue to work hard behind the scenes to monitor this situation and recommend actions as appropriate. If you have any questions about your specific situation, please contact us. We are here to help.
Thank you for your continued trust and confidence.