What a day! What a week! What a month! This week has been a wild ride starting with the oil price war and quarantine in Italy. We then had the WHO pandemic declaration, US travel ban, and a cascade of closures and event cancellations. Yesterday (March 12) U.S. stock market suffered the worst day since Black Monday in October 1987. The world sure feels scary and we don’t want to minimize these events and market gyrations. However, we thought it would be helpful to share our perspective with clients.

Where are we?

• We have officially entered bear market this week ending the 11-year bull run started in March 2009.
• We knew a bear market was coming, we didn’t know the timing or the cause but deep drops are a normal feature of investing in stocks not an unforeseen bug. We discussed it with clients as the good times were still rolling and tried to keep expectations for future returns in check. Even though it feels different and more painful than we remember, we have been here before (and will again).
• It’s very likely we will see a U.S. and global recession given major disruptions in global commerce and consumer spending which is a huge part of the economy. Again, it’s a normal and even healthy feature of the capitalistic economic system. Ben Carlson had a great post reviewing history of recessions.
• Federal Reserve and Congress are working on policy interventions but there is no telling how successful they will be.

What it means for your portfolio and financial plan

• Most importantly, you have a plan that will see us through this. Call, email or come see us to discuss your personal situation (sorry, no hugs or handshakes – only elbow bumps until further notice).
• Your portfolio is built with these periods in mind and has fixed income “ballast” to withstand the volatility (unless you are very young and have decades before making portfolio withdrawals).
• Our bond funds are doing their job and our 2018/2019 moves to eliminate High Yield and other riskier bonds are paying off.
• For clients in the distribution stage who are withdrawing money from the portfolio:
  • You have cash reserves that will last for a few months
  • The income stream from bond interest payments and stock dividends will continue to come in. We will likely see some isolated dividend cuts from energy and travel-related companies but most will continue paying.
  • Having a diversified portfolio with stocks and bonds means that we are now overweight bonds and have a source of funds that didn’t go down. For example, if you started the year with a 60/40 allocation, you are now about 7-8% overweight in bonds. Assuming a typical 4% withdrawal rate, that’s 1.5 to 2 years’ worth of distributions that can come from bonds.
• For clients who are still in the saving stage – definitely continue making your regular contributions and if you have “extra” cash let’s discuss making  some additional investments.

Should we “do something”?

• This question is on everyone’s mind these days – “Why don’t we just sell everything and get back in when the dust settles”?
• There are a lot of reasons to avoid knee-jerk reactions in times of market stress but the biggest one is that we won’t know when the “dust has settled”. Markets have a way of staging furious rallies long before it feels right to re-enter. Getting back in would become a maddening guessing game that most likely would leave you much worse off than riding this out.

What you can do

• Don’t follow the news too closely, particularly hyperbolic market coverage
• Stay safe from the virus and take care of the loved ones
• Focus on things you can control – review personal spending and postpone any big ticket items that can wait
• Don’t let your friends and neighbors get in your head – “Are you getting out? I got out last week.” Everyone has their own way of dealing with this and public pronouncements are often very different from reality.
• If you need to talk this through, please get in touch with us – these are the times when we as advisors truly “earn our keep”!