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In Your Best Interest

Published by: Jay Slagle, CFP® Date: March 20, 2020

Where are we?

For the past month, headlines have been dominated by the COVID-19 pandemic as it spread worldwide at an incredible rate. This outbreak has disrupted our basic social patterns, financial markets, and threatens economic activity across the globe. Global stocks have fallen over 30% from their February highs, and reflexively many investors are reminded of the financial crisis of 2008-2009.

Rather than fears of the financial system collapsing, our collective concern is currently with our health care system. To “flatten the curve” and manage health care capacity, social distancing has become a new part of our lexicon and a temporary way of life. What has many around the globe concerned is not the next 12-18 months, like in most bear markets, but rather the next 12-18 days as we wait to see the impact our efforts to self-isolate.

Attempting to soften the economic blow and stabilize the financial system, the Fed acted quickly, dropping interest rates to 0% within a matter of weeks. The Federal Government has also stepped in to appropriate $50B in funding for pandemic relief. It is deliberating on a fiscal stimulus bill to provide over one trillion dollars of federal spending. These efforts will provide cash directly to consumers, low-interest loans to support small businesses, and other measures to protect the foundation of our nation’s economy.

In the short-term, uncertainty will continue to be with us. The stock market will likely remain volatile as we seek to learn more each day about the impact of the virus on the global economy.

What are we doing?

In moments like these, our conversations with clients start by reconnecting with their “why.” What did you say was most important to you when you were thinking calmly and level headed about the future? For many, the answer may be security, having the ability to retire when I want, and taking care of our families. If those were our core values when we started the year, they likely still hold today.

Next, we’ll revisit the investment mix that provided the appropriate amount of risk to accomplish your goals. When we arrived at that allocation together, the analysis accounted for both good and bad years in financial markets. How far we moved between a conservative and aggressive allocation was determined by each plan’s spending goals, ability to take risk, as well as your unique risk appetite.

Because we know that markets will move with the flow of information, we all need a mechanism in place to rebalance the allocation and keep risk consistent over time. For 401(k) plan participants, this is best accomplished through contributions each pay period, called dollar-cost averaging, as well as through target-date retirement funds or model portfolios that handle rebalancing for you. For wealth management clients, the rebalancing process is currently reviewed weekly and measures your allocation in relation to the target we established together. Guardrails are in place 20% above and below each target and determine when and where adjustments are needed.

This week in our review of drift from the target, we observed that the sharp downturn in stocks breached the lower threshold for many clients and enabled an incremental trimming of bonds and purchasing of stocks. We’re all familiar with the investing mantra of “buy low and sell high,” but the recent bear market has highlighted that without a predetermined policy in place, it’s easy to quote but challenging to execute for ourselves. Our disciplined, unemotional approach allows us to act when needed and think long-term in the middle of the fog of current news headlines.

Where are we going?

It’s normal to look at the current headlines and think this time is different. In fact, in our lifetimes, a global pandemic is a unique disruption none of us have seen before. However, when we examine the weighty evidence of history, we find that while the cause of every economic and financial downturn in the past has been different, they all share one common trait: they all end.

Though there will be difficult days ahead, health experts tell us taking necessary precautions will lead us to a time that this outbreak is controlled and we can resume normal life again. In the same way, there is light at the end of the tunnel for our investments. By owning a portfolio of globally diversified, low-cost investments, we’re confident that people around the world will emerge from this crisis with hope and opportunity. These people are the same ones who manage and work at the companies we invest in throughout the world. They will roll up their sleeves and get back to work determined to not only make their own lives better but to improve the lives of those they serve. Existing companies will evolve and learn from this experience. They will see problems and work to solve them. New companies will emerge to meet the issues we face. We don’t yet know who the next Google, Apple, or Amazon will be, but we are confident that companies will spring to life solving problems we may not even be aware of, and that is a source of optimism. The ownership of these companies and future endeavors is how we will participate in the wealth creation process.

To our clients, friends, and families, we hope you stay safe and healthy throughout this crisis. Stay informed but not overwhelmed by constant headlines; our brains aren’t wired for the 24-hour news cycle. You have trusted us by delegating the stewardship of your financial assets, and we’re acting in your best interest. Your financial plan is not a static document but rather a process, and like any strategic plan, the value is best demonstrated not when things go our way but rather when our resolve is tested, and the plan is upheld.
Please let us know if you have any questions or concerns during this time.

We’re here to help.