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Month: March 2020

Five Do’s and Don’ts During Times of Market Volatility

As you know, the coronavirus pandemic is not only a health crisis.  It’s also causing an economic crisis.  That’s why, over the last month or so, many of our clients, friends, and families have asked us what investors should be doing about all this volatility.  So, we thought we would write down:

Five Do’s and Don’ts During Times of Market Volatility

1. DON’T panic and make emotional decisions. 

During times of uncertainty or fear, humans are prone to make decisions based on their “fight or flight” response.  Yes, this is even true of our financial decisions!  When market volatility strikes, many people make knee-jerk decisions simply so they can feel like they are doing something.  So they can feel “in control.”  But think about when you’re driving a car, and you see an animal in the road.  What happens when you jerk the wheel?  Yep – you’ll probably overcorrect and increase your odds of crashing.  The same is true with your money.  Knee-jerk, or emotional decisions, often tend to do more harm than whatever it is we’re reacting to!  So, when making a decision, always ask yourself, “Why am I doing this?  Do I have a specific reason, or is it just because I feel like I have to do something?” 

2. DO think long-term. 

Investing, by its very nature, is a long-term activity.  Even people who are close to retirement are still investing for the long-term.  That’s why, while bear markets are uncomfortable, they’re also somewhat overrated.  Markets fall over days, weeks, and sometimes, months.  But history has shown that they rise over the course of years and decades, which is good, because you’ll probably be investing for years to come! 

To return to our driving analogy, think of the last time you were caught in a traffic jam.  You’re sitting there, idling in traffic, when suddenly, the lane next to you starts to move.  So, you quickly merge into that lane, only to get stuck again.  Meanwhile, the lane you were just in is now moving…and all the cars that were once behind you are now speeding ahead. 

Maddening, isn’t it? 

When bear markets hit, investors often panic.  Instead of sticking to their long-term strategy, they sell, sell, sell – at a time when everyone is selling.  This means they are selling low.  In other words, they try to change lanes in the middle of a traffic jam. 

But again, we’re in this for the long-term.  The road we’re on stretches for miles.  Sometimes, the speed limit is 75 miles per hour.  Sometimes, it’s only 25.  Trying to take shortcuts just leads to longer delays.  

3. DO think about your current asset allocation and risk tolerance.

Market volatility is a good time to determine whether you are invested the way you should be, given your age, financial goals, and ability to take on risk.  Generally speaking, younger people can often afford to weather extreme volatility more than older people who are very close to retirement.  So, look at your portfolio to determine whether it’s time to move into more conservative investments that leave you less exposed to the kinds of swings we’re experiencing in the stock market.  And remember that you can always ask a professional for a second opinion if you’re unsure!

4. DON’T look at your portfolio each day and stress about every dip in the stock market.

That said, one of the worst mistakes investors can make is to obsessively check how their portfolio is doing.  The markets are like a person’s body temperature – they are constantly rising and falling.  Just as you probably don’t take your temperature every day, you don’t need to do that with your money, either.  Again, think long-term, not short.  Prioritize your overall financial health over the day-to-day. 

5. DO set up an emergency fund if you haven’t already.

Like market volatility, economic recessions are inevitable.  Sometimes they affect us, and sometimes they don’t.  There’s no way to see the future, but we can prepare for it.  Setting up an emergency fund, with enough money inside to cover three-to-six months’ worth of living expenses, is always a good idea.  This is especially true right now, given that many people may be out of work or in quarantine for some time. 

Market volatility is never fun, but it is a normal part of investing.  So long as we remember to think long-term and rely on ration over emotion, we can continue working towards our goals and dreams.   

And that is what investing is all about.   

If you ever have any questions or concerns about the markets, please feel free to contact us.  We are always happy to chat!   

Important notice from the Minich MacGregor Wealth Management Team

We hope this email finds you and your family healthy.  Things are changing by the hour and there is a lot of uncertainty.  You can rest assured that Minich MacGregor Wealth Management is operating at full capacity with no disruption to our business.  

We have made some logistical changes.  As of today, several team members are working in our Saratoga Springs office while others are working remotely.  Should we receive instruction to close the office and work from our homes, we have the processes and technology in place to do so.  

We are committed to the safety of our clients, employees and community.   ​​Many of our scheduled in-person appointments are being changed to telephone appointments to respect the importance of social distancing.  

It is important for you to know that we are here and we continue to monitor the markets.  We will continue to provide updates should things change in the coming days.  If you have questions or concerns, please do not hesitate to contact our office at 518-499-4565.

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An Update on the Coronavirus Situation

On Thursday, March 5, 2020, the Dow fell 969 points – just the latest in a week of wild swings.1  While monitoring the situation, a headline caught our eye: 

“Dow tumbles nearly 1,000 points again, because stocks can’t figure out coronavirus.”2  

To us, this headline illustrates what the media often gets wrong about investing.  But before we dive into that, let’s review how the coronavirus (COVID-19) is impacting the markets.  

A wild week

In terms of pure numbers, the first week of March has been one of the wildest in recent memory.  In fact, the Dow had two of its best days ever on March 2nd and 4th…but two of its worst days ever on March 3rd and 5th. 2  Writers have been comparing the stock market to a rollercoaster for decades, but this takes the analogy to a whole new level.  

It’s not hard to understand why.  The coronavirus outbreak – which as of this writing has spread to over 100,000 people, with over 3,400 fatalities – is putting a major crimp on business activities around the world.3  Global supply chains, which are the networks between a company and its suppliers, have been dramatically affected. As a result, some of the world’s largest corporations have warned shareholders that they may not be able to reach their quarterly profit estimates.  Industries like travel and transportation, which depend on the movement of people and goods, have seen business plummet.  This in turn has impacted the energy industry, as less travel and transportation mean less demand for oil.   

So.  Coronavirus is definitely taking a toll on global markets.  The question economists are struggling to answer is, “How will coronavirus affect the global economy?”  

Here in the United States, consumer spending is one of the main drivers of our economy.  There have been over two-hundred confirmed cases of COVID-19 thus far.  That’s a small number in the grand scheme of things.  Economists’ concern, though, is that the virus may spread, causing people to stay home and consumer spending to slow dramatically.  Nations with far more cases, like China, South Korea, and Italy, are already seeing slowdowns.  The worst-case scenario, according to some analysts, is that economic growth for 2020 could be cut in half if the virus continues to spread.4  Should that happen, some nations may well experience a recession.  

The Federal Reserve responds

For weeks, analysts expected the Federal Reserve would act at some point.  That’s exactly what they did on Tuesday, March 3rd, when the Fed announced they would cut interest rates by 0.5%.5  The Fed figured lower interest rates would prompt more spending and lending.  Think of it as giving the economy a dose of Vitamin C.  

But the markets fell anyway.  

There are a few reasons for this.  While a rate cut was expected, the Fed acted much sooner than many anticipated.  So, rather than prompt enthusiasm, it instead prompted concern.  “If the Fed feels like they have to cut rates to keep the economy going,” the thinking goes, “what does that say about the economy?”  

Then, too, there’s only so much that lower interest rates can actually do.  To be frank, the Fed has already spent most of its ammunition on this front.  Interest rates have been low for years and have only gotten lower lately.  Furthermore, interest rates can’t fix global supply chains, or replace lost business.  They won’t fill seats on airlines or keep the machinery running in hard-hit factories.  Nor can they stop coronavirus from spreading.  

Viruses are no respecter of borders or laws; they’re certainly no respecter of lower interest rates.

Headline-driven investing

Just typing those words makes us shudder!  Headlines are one of the last things that should drive investing, but that’s where we are right now.  The proof is in what happened on Wednesday, March 4th.  

The night before was Super Tuesday – when fourteen states held presidential primaries.  Joe Biden won most of these states, which buoyed investors, as Biden is seen as more centrist than his main opponent, Bernie Sanders.  

What connection does Joe Biden winning have on stocks?  None right now.  It doesn’t change anything about coronavirus.  It won’t magically increase economic activity.  The election itself isn’t for another eight months!  And yet, the markets rose over 1,000 points on the back of that headline…before giving most of it back the very next day when the headlines changed.6   

Which leads us back to the headline we showed you at the beginning of this article.  

“Dow tumbles nearly 1,000 points again, because stocks can’t figure out coronavirus.”  

Look at those words again: Stocks can’t figure out coronavirus.  Stocks don’t have minds of their own, of course, so my guess is the headline really meant investors can’t figure out coronavirus.  

But here’s the thing.  For investors, there’s not much to figure out.

Economists, analysts, and pundits try to divine how today’s news will affect tomorrow.  They create projections to help banks, businesses, and politicians make decisions.  It’s a hard job, there’s no denying.

But no investor can accurately predict how bad the virus will or won’t be.  We’ve seen some commentators make claims about vaccines, or how warm weather will stop the virus in its tracks, or any of a dozen other things.  It’s all speculation.  The fact is, no one knows how long this epidemic will last, or how far it will spread.  No one knows who will win the election in November.  No one knows the future!  We can make educated guesses, but we can’t know with any certainty.  So of course investors can’t “figure out” coronavirus.  

Even if we could, the situation would likely change the next day!  

To us, the problem with the headline above is that it implies investors should be trying to “figure it out.”  But if we could, there would never be any uncertainty.  Investing would become as predictable as grocery shopping.  But investing doesn’t work like that.  That’s why we don’t make investment decisions based on predictions.  It’s why, during times of market volatility, we don’t chase our own tail, trying to time the markets or make risky bets based on what we guess might happen.  

In other words, we don’t need to “figure out” coronavirus.  Let’s leave that to the scientists.  Instead, all we need to do is largely what we’ve already done!  And that is:

  1. Determine what kind of investment return you needto reach your goals, and then choose high-quality investments based on the principles of supply and demand.  When demand outpaces supply, buyers are in control, and prices are likely to move upward.  When supply is greater than demand, sellers are in control, and prices tend to go down.  That’s why we don’t buy or sell based on predictions or stories.  We look at what is actually happening by examining trends.  
  2. When the market is trending upward, we focus on growing your money.  When the market trends down, we focus on preserving it.  This is done by putting strict rules in place that govern your investments.  For example, if an investment moves below a predetermined exit point, we sell.  If necessary, we can move entirely to cash if that’s what it takes to preserve your principal.

In the short term, coronavirus will probably continue to impact the markets.  The global economy will continue having symptoms.  But we don’t need to guess what the effects will be anymore than we need to guess what the weather will be like ninety days from now.  Instead, we determine the rules we need to follow to help you reach your goals, and then follow those rules to the letter.  To us, it’s comforting to know that we don’t need a crystal ball to be successful long-term investors.  We don’t need to be virus experts.  All we need to be is disciplined, informed, and prudent.  

In the meantime, we expect volatility will continue.  By the time you read these words, the headlines will have changed again.  That means the markets will have probably swung again.  That’s okay.  Because while volatility is never fun, we don’t need to “figure it out.”  We’ve already done that.  

One more thing, while we’re encouraging you to not stress over daily headlines or market swings, we understand that’s sometimes easier said than done.  After all, it’s your money!  So, if you have any questions or concerns about your portfolio, please let us know. We will always be here for you.  

Have a great week!   

1 “Stocks Close Sharply Lower as Anxiety About Virus Returns,” The Wall Street Journal, March 5, 2020.  https://www.wsj.com/articles/global-markets-follow-u-s-stocks-higher-11583376176

2 “Dow tumbles nearly 1,000 points again, because stocks can’t figure out coronavirus,” CNN Business, March 5, 2020.  https://www.cnn.com/2020/03/05/investing/dow-stock-market-today/index.html

3 “Tracking coronavirus,” BNO News, Last updated March 6, 2020.  https://bnonews.com/index.php/2020/02/the-latest-coronavirus-cases/

4 “Coronavirus is plunging the global economy into its worst crisis since 2009,” CNN Business, March 2, 2020.  https://www.cnn.com/2020/03/02/business/oecd-global-economy/index.html

5 “Federal Reserve Cuts Rates by Half Percentage Point to Combat Virus Fear,” The Wall Street Journal, March 3, 2020.  https://www.wsj.com/articles/federal-reserve-cuts-interest-rates-by-half-percentage-point-11583247606 

6 “Dow soars more than 1,100 points as market rallies off Biden win,” CNBC, March 3, 2020.  https://www.cnbc.com/2020/03/03/dow-futures-show-300-point-pop-as-early-super-tuesday-results-favor.html

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