Dear Wiser Client,
I keep looking at the long-term chart of the US stock market. Looking in the rear-view mirror on a chart, it’s easy to find the points during past crisis where I can think, man if you bought stocks there… you would have doubled your money in a short time. It’s also easy to say if I had gotten out there, I could have avoided the pain. Then, I compare the chart to the news events of that time. The oil crisis in the 70s, the ‘87 stock market crash where the market fell 22% in one day, the dot-com bubble in the 2000s and the great financial crisis of 2008. All of these events were difficult to live through. Most of us experienced some sort of pain. The pain this time is the coronavirus and it has definitely made a mark on our lives and on future versions of the stock market chart.
We will get through this just like all the other events, but we have to stick to your financial plan. Your financial plan has the possibility of a major market decline just like this one calculated into it and the plan has worked.
I am guilty of telling you to turn off the financial news and go about your day, yet I find it hard to do that myself. I feel it is my job to take on this burden for you, to be on alert and to analyze every possible move. I am not sleeping well, but I hope that I don’t so that you can. The Wiser team is not in retreat. We are here (6ft apart or at home) working hard for your future. One of our most important jobs is to keep you focused on the long-term. Sometimes doing nothing is better than anything else and you have to think about your future self. Fear is never a good investment strategy.
We still need two events to happen to help the markets find better footing. First, the plateau of coronavirus cases in the US and secondly, the details of global government stimulus. As of March 22nd, there are 32,949 cases in the US. 98% are mild and 2% are critical. With mass testing just now rolling out, cases will dramatically increase but over the next week or two, should hopefully plateau. (Source: WorldOmeter). As I write this, the US Senate has been unable to move forward with a stimulus plan that could also pass the House. Stock futures are down nearly 5%. This kind of volatility will persist until the virus slows and the economic impact is fully quantifiable.
Last Thursday, March 19th, BlackRock sent guidance to rebalance our portfolios, thus we decided to rebalance the portfolios on Friday, March 20th. This rebalance took gains in government bonds and other asset classes that have not fallen as much as others to then reinvest in stocks. This call by BlackRock does not mean that we are at the bottom, it simply means that they believe current stock valuations are good enough to rebalance portfolios with a long-term focus. The rebalance did not take us back to the percent of stocks vs bonds that we had in mid-January. We are now at a neutral weighting of stocks versus bonds. This means that if the market gets worse, we still have the ability to rebalance again in hopes of capitalizing on the eventual market recovery.
For non-retirement accounts, we have been successful in capturing losses in securities that have lost value for income tax purposes. This will preserve carryover losses that may be used to offset any gains this year and in future tax years. This process is called tax loss harvesting and it is something that every good advisory firm should be doing for their clients right now.
Finally, I appreciate all the calls and emails. It seems 8 out of 10 are of encouragement and gratitude. The others are what I expect and it’s my job to talk those off the ledge for the betterment of their future. I couldn’t be working for better families.
Casey T. Smith