As volatility continues to dominate the world regarding the coronavirus, we wanted to give you a few points on how our response works.
First things first: (and this is actually pretty mission critical….)
It’s really important during very volatile times like these that you maintain the same strategy through all periods, (assuming that strategy was and is still correct for you long term). It’s wise to make tactical moves like mentioned below or to be opportunistic with some purchases when possible, but a wholesale change to major aspects is almost always detrimental and possibly difficult to recover from. It might feel good in the moment to ‘do something’, but that typically translates to a bad outcome.
If however you stick to the plan, when the market ever recovers, then you too likely should recover. Chances are, the only folks on the rollercoaster that get hurt are the ones who jump off. I’ll also make mention that recoveries don’t actually take as long as it might seem (see chart below). It feels like it might take decades, but they are traditionally measured in # of days.
Source: FactSet
How it began and how it’s adapted thus far:
1) Before all this began, we designed an investment mix that was the right ‘fit’ for each client.
a. For our clients still in growth mode with retirement still in the distance, this market drama will long since be over by then so as painful as it may seem to see current values drop, keep regularly investing through all the turmoil taking advantage of the currently lower prices.
b. For those clients very close or already retired, some level of ‘shock absorber’ has been pre-incorporated into your investment mix to help provide cushion in turbulent times. That actual design is based on each person’s particular circumstance, but to one degree or another that has been there all along.
2) As bad markets apply pressure to your portfolio’s, certain parts and pieces of the portfolio ‘push back’. What we mean by that is by design certain investments can do quite well in periods of poor market performance so while parts of your mix are going down with the tide of the market, other parts might be actually going up providing some overall balance to your accounts. It can be described as a ‘counterweight’ as such (if you think of it like a see-saw) and that’s how we attempt to provide ‘balance’ to your portfolio (hence the name).
3) The more pressure bad markets put on associated areas of your portfolio (as they fall in value), the lower the impact those investments might have thereafter. The higher the price rises for the ‘counterweight’ (aka conservative investments), the more impact those investments might have thereafter. So in a sort of ‘automatic’ way, the more the market goes down, the more conservative the mix becomes in response.
So by way of analogy, picture a heavy duty coiled up spring. The more you push against the spring, the harder it become to continue pushing further. That’s just an analogy, but I hope that helps paint the picture on how we designed things from the outset.
In the End:
It sounds cliché, but devise a sound strategy, stick to it, keep a long term focus, and this too likely shall pass. I’m not going to try to call the bottom but valuations at this level are extremely compelling under the assumption that the world keeps spinning and certainly much lower prices than just a few months ago. That’s just an observation, but we feel that eventually we will be able to overcome this crisis like we have all the ones that have preceded and that we see new market highs at some point on the other side. We remain focused on that and recommend the same to you.
As always, if you need anything, including perhaps just a sounding board for your concerns, we remain here and ready.
Best Regards,
Brad Hudson, CFP®, CIMA®, AIF®
CERTIFIED FINANCIAL PLANNER™ | Certified Investment Management Analyst℠ | Accredited Investment Fiduciary®
Branch Manager
5129 Oleander Dr., Suite 202 | Wilmington, NC 28403
910.399.7765 • 1.888.588.0878
1.866.550.8542 Fax
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The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Brad Hudson and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.