A Further Look | Mar 12, 2020
Am I Going To Be All Right? Part One.
David B. Root, Jr.
That’s a question we often hear from clients. It has been asked much more frequently during the current spike in volatility due to the coronavirus epidemic. But our answer hasn’t changed.
You’re going to be just fine.
Most of the time, everything is okay. It is very, very tough to bet on things not being okay. But coronavirus is different. Maybe. When things get bad, a lot of counter measures kick into play. The fiscal measures our president talked about in his address from the oval office this week being one of them. There will be many more.
My grandmother, who grew up during The Great Depression, had a comforting phrase for times like these: “whatever is true, whatever is honorable, whatever is just. If there is any excellence and if there is anything worthy of praise. Think about these things.”
Thinking about my grandmother's words inspired me to consider one measure: with current interest rates so low, maybe it’s time for our government to consider a massive $2 trillion infrastructure bill. Such an effort is what pulled our country out of an even worse situation: The Great Depression.
Don’t let your emotions work against you. Scary rhetoric about a boogeyman under the bed can be unsettling. But sometimes, we need to look under the bed for ourselves to see if it’s real. Rational thinking prevails when we step back and consider the larger reality.
Leading up to the market peak in February, the ‘fear index’, or VIX, has stayed at a range of 15 or 16 for most of 2019. This is very low by historical standards. Today, volatility has reached record levels (40+) and has remained there for an unprecedented period. In response, the Federal Reserve dropped interest rates in a rare inter-meeting move, an occurrence that typically happens during a crisis, such as 9/11 or the 2008 market crash.
All of this can create anxiety for the markets and for investors. But when cooler heads prevail, we also know that things do eventually right themselves often sooner than anticipated. And the educated investor doesn’t only remain steadfast, they look for opportunities in this environment.
For example, with rates dropping so abruptly, this would be an excellent opportunity to refinance your mortgage, or other debt. And if you are making consistent contributions to your 401(k), this is now a great opportunity to perhaps increase those contributions to load up on investments that are essentially on sale. Thirdly, there could be positive tax considerations by harvesting some of your current losses.
While I am not sugar-coating the current setback, I do want to reinforce what we have always told clients:
- Refrain from reacting on emotions. As our Chief Investment Officer, Mike Aroesty, reminds us, “panicking is not part of our process.”
- Make sure you have a good balance in your portfolio of stocks and bonds.
Bonds are up, and if you have a balanced portfolio it will ease your short-term losses on stocks.
Will you lose money now? Probably. But how you manage your emotions and your portfolio will make all the difference when the market corrects itself. We’ve seen this before and will see it again. Have faith in your process, and the long-term plan you have in place. Volatility in the short term ‘fear index’ does not have to impact your long-term success.
We’re all going to be okay.
Thanks for reading,
This material has been provided for general, informational purposes only, represents only a summary of the topics discussed, and is not suitable for everyone. The information contained herein should not be construed as personalized investment advice or recommendations. Rather, they simply reflect the opinions and views of the author. D. B. Root & Company, LLC. does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice that is specific to your situation. There can be no assurance that any particular strategy or investment will prove profitable. This document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such sources, and take no responsibility therefore. This document contains certain forward-looking statements signaled by words such as "anticipate," "expect", or "believe" that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward-looking statements. As such, there is no guarantee that the expectations, beliefs, views and opinions expressed in this document will come to pass. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. All investment strategies have the potential for profit or loss. Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. The impact of the outbreak of COVID-19 on the economy is highly uncertain. Valuations and economic data may change more rapidly and significantly than under standard market conditions. COVID-19 has and will continue based on economic forecasts to have a material impact on the US and global economy for an unknown period.
David B. Root, Jr.