During the financial crisis of 2008-2009, just like now, I had a lot of conversations with a lot of clients about what might happen next. Also like now, I was sending out commentaries just like this one to talk about long-term vs short-term. I kept all of those commentaries, and I was just re-reading one from February 2009 which was titled “This is Just Awful!”. Here is a quote from that one:
“Every time I look at the computer screen to check the market levels, I get a wave of nausea. I, like other investors, continue to struggle on a daily basis between reacting emotionally and being opportunistic. However, I have decided to position my portfolio for recovery.” Further, this is done via “well-designed asset allocation strategies that include fixed income, equities, real asset and complementary strategies positioning me for recovery.” Within a few weeks of that email, recovery did begin.
That bull market dramatically ended last week after an 11-year run that was very rewarding for long-term investors. By last Thursday’s market close, 99 percent of S&P 500 companies were at correction levels (minimum price drop of 10 percent) and 89 percent were in bear territory (minimum price drop of 20 percent), suggesting that selling was not driven primarily by fundamentals.
What started as a supply chain issue rooted in Asia has evolved into both supply chain and domestic demand challenges for the U.S. economy. While no one knows what the depth or duration of this economic slowdown will be, we can expect continued volatility in the coming weeks as markets react to a very fluid situation, and as companies bring greater visibility to expected 2020 earnings and the economic impact of recent events.
A few people have asked “what changes do we need to make?” In most cases, the answer is nothing. As I mentioned above, our clients are in well-designed asset allocation strategies already. While action may seem to be the way to go, in some cases inaction itself is the appropriate course of action. Others have asked “should I pull cash from emergency funds to invest while it’s so low?” I say no to that as well. If you regularly contribute, continue to do so. But there is no need to take undue risks with emergency funds.
As we continue to manage our clients’ long-term assets, we continue to do what we’ve been doing: putting new cash from interest/dividends to work and rebalancing regularly, following each client/account’s investment objective.
Stay calm, stay positive, stay active, and wash your hands!