By David Root, CFP®
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 OK. It is very, very tough to bet on things not being OK. 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 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 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 (9/11, the 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.”
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 OK.
Thanks for reading,
Founder and CEO
DBR & CO
David Root is Founder and CEO at DBR & CO, a Pittsburgh-based wealth management firm. If you would like to contact the author, David Root, please e-mail him at email@example.com or call 412-227-2800.
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