Dear Clients & Friends,
With the increased market turbulence over the last few weeks and the coronavirus infection officially becoming a pandemic, we wanted to reach out to provide context and our thoughts on the current situation.
After the World Health Organization declared COVID-19 a global pandemic earlier this week, stocks subsequently tanked, officially entering bear market territory. Negative headlines are coming too fast and furious. The only thing scarier than losing money is losing your life which has created a perfect storm of panic.
The ability to remain calm while other investors are panicking is priceless during times like these—and viewing market volatility as an opportunist rather than a victim is an absolute necessity. We have been in touch with the appropriate clients to proactively convert dollars from pre-tax IRAs to tax-free Roth IRAs, because when the market inevitably rebounds the bounce back will be free of income taxes in the Roth IRA. As the market volatility persists, we will continue to reach out to sell bonds and buy the great companies of America and the world (stocks) at a substantial discount.
As a firm, throughout 2019 and in January of 2020 we reduced our overall allocation to stocks across the practice and increased our allocation to high-quality bonds and gold recognizing that the market will not be at all-time highs forever in an extended bull market. We are very prepared for markets like this and so are you. This is exactly why each of you has a long-term plan in place—not for the easy up markets like last year, but for markets like this. Now is the time to ignore market volatility, however long and painful it might be, and come out on the other side. We firmly believe that volatility is the emotional price you pay to create wealth over time.
So you might ask what is going to happen? Let’s get that out of the way right now. No one knows.
While this may be the first COVID-19 crisis filled with uncertainty, this is not the first market downturn created by uncertainty. In fact, there is only one thing all bear markets have in common: they come with a large dose of uncertainty. What is an investor to do? Historically, an investor who went to cash to “wait until things got better” got burned, missing the time to get back in (which is nearly impossible to do). Notably, neither Warren Buffet or the late, great John Bogle (the founder of Vanguard) has been able to successfully time the market nor ever met anyone that could.
Wise investors ignore the short-lived declines collect dividends and wait things out. Brilliant investors continue to rebalance through the pullback (as we have been), by shifting from bonds to stocks, and also take advantage of booking tax losses to offset future capital gains. These investors generally recovered faster than the market and are far better off after accounting for tax savings.
Lastly, we want to provide you with important resources at your fingertips to help you understand the evolving situation with the coronavirus and information to help you minimize any risk to your health. The resources below provide useful guidance:
Breathe in, breathe out, wash your hands, and try to keep a cool head through this astonishing event. We have a feeling this is one of those times we will all remember and share stories about years later.
Please find below updates and commentary from First Trust Chief Economist Brian Wesbury, JP Morgan Virus & Investment Outlook, and from the Merrill Chief Investment Officer Chris Hyzy.
With warm regards,
Brandywine Oak Private Wealth