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Investor Coronavirus Update – Waiting it Out

The Coronavirus Pandemic

The Coronavirus (COVID-19) pandemic crossed 10,000 cases on February 1st, 100,000 cases on March 6th and today, March 25th, the tally is at 436,159 worldwide. So far 19,648 people have passed away from the virus. Most of the country and world are on lock-down to slow the spread of the virus, and the economic implications of this are serious. The Federal Reserve conducted surprise rate cuts to lower the Federal Funds rate to 0%. As I finish writing this, the Senate just passed a $2 trillion dollar stimulus package that would help individuals, families and businesses weather the economic hardship the virus is causing. This should buy the economy time, but make no mistake the uncertainty that exist today will continue to exist until the spread of the virus is under control. A true economic recovery probably won’t begin to happen until then.

Still, I am encouraged. I am hearing so many stories of people doing kind things during this crisis. Despite the 24/7 negative news cycle and stories of hoarding, I am witnessing people sacrifice, I’m seeing ingenuity being used and I’m encouraged by the amount of people willing to help those who are financially and medically at risk. I am finding myself feeling incredibly optimistic about how this experience will improve our world in the long-run.

The Stock Market

As of March 23rd, the Dow was down about 37% from its high, the S&P was down about 34%. On March 24th the Dow recovered 11.37% and is now 29.94% off it’s high. The 30% drop is the fastest in the history of the stock market. It has been jarring to say the least. That’s not a record anyone wants to live through, but it also doesn’t represent the performance of most investors.

Most investors within 10 years of retirement should have a diversified portfolio that minimizes losses through times like this. For example, a typical equity-to-bond asset allocation of 60/40 would have returned between -17% and -20% during this period. Still a significant draw-down, but much more manageable for a moderate investor.

If you are a young investor, you should be enthusiastic about the timing to buy into the market and increase your personal share of ownership in the local and global economy. Historically, average long-term returns start to improve significantly when the market is 20% of it’s highs. The further off it’s highs the market gets, the better the average long-term returns become for new investments.

Did you know, since 1950 the S&P 500 has lost an average of about 34% during bear markets, which have lasted an average of 431 days. The average amount of time it takes to recover the losses and break-even has been about 17 months. (1)

Having a Plan

For people who are close to retiring or retired, a market crash poses a threat if you aren’t prepared in advance. A good financial plan with proper diversification helps mitigate this threat. The people who don’t have a plan are the ones panicking. The people who do have a plan understand that while some adjustments may need to be made, they are ok, they are prepared for bear markets.

Our clients have a plan, if you don’t have a plan please contact us to discuss putting one together. Also remember, half the country doesn’t own stocks. Many of these people are much more worried about their job security than the price of the S&P 500. Let’s continue to find ways to support those around us.

There will be more to follow on the Coronavirus stimulus package in the coming days. If you missed our first investor update on the Coronavirus and our investment philosophy please read it hear.

  1. American Institute of Certified Public Accountants, Broadridge Advisor, 2020

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