The global financial markets began this week with a sell-off
with global equities down more than 7% midday following large declines in oil
prices and continued concerns about containing the community spread of the
coronavirus.1 We realize it can be distressing to see this level of
market volatility, which can be positive and negative as demonstrated last
week. In these times, it is helpful to recall that we have seen other turbulent
markets in the past.
The exhibit below features historical periods of volatility
and the subsequent recovery from 1970 to 2018. The S&P 500 Index dropped
46% in 2008, and the market recovered. Your portfolio has been designed to not
only survive but take advantage of market downturns and financial crises. Thus,
it is important to maintain discipline through this volatile period, as the
data suggests this discipline should result in long-term growth and value
creation for the investor.
At this time, we are focused on rebalancing portfolios to
capture returns. Even though equity markets are down, long-term bonds are up
about 27% year-to-date.2 It would be imprudent not to take some of
those gains off the table and allocate them to equities. This is the definition
of sell high, buy low. Just like in 2008, we encourage clients to focus on the
long term, and that drops in the market were expected when we put together your
long-term plan.
Buried in the press and coverage, there are positives to
note for the consumer. First, the price of Brent crude oil, a measurement of
oil prices, has dropped from $68.91 a barrel on January 6, 2020 to a low price
of $31.02 a barrel through midday on March 9, 2020.3 Oil prices play
a major role in the price of gasoline, and consumers can expect to see lower
prices at the pump. Second, the drop in long-term bond yields correlates with
historically low mortgage rates. If you have a mortgage, it may be prudent to
look at your current interest rate and evaluate refinancing. Third,
methodically investing capital over time will capture dollar cost averaging
during this period of volatility. Dollar Cost Averaging allows an investor to
put money into the market at these cheaper prices while reducing the
point-in-time risk of investing everything at once. It can be a great strategy
to reduce volatility and regret when putting more money to work. Finally, it is
of our observation that the U.S. banking system is in a significantly better
position presently than in prior financial crises.
Over the past 35 years, our advisors along with our partners at Forum Financial have been through many periods of global volatility. We recognize that such periods are never easy to go through. In these situations, the only thing you can control is your behavior and realize that making a decision that doesnât conform to your long-term plan will often lead to poor outcomes.
Our most important job is to keep you disciplined in a
globally diversified portfolio to help you achieve your financial goals, so you
do not have to continually focus on your portfolio. It is more important to
concentrate on staying healthy and keeping your family well. Your advisor is
always available for any questions you may have.
To schedule a meeting please click here or call our offices; 702-545-0680
Greg Feese, CRPCÂź
Wealth Management Advisor
Sources
1 Claire Ballentine and Vildana Hajric, âStocks
Slump Most Since 2010 With Oil in Free Fall: Markets Wrap.â Bloomberg, Updated
March 9, 2020.
2 Long-term bonds as proxied by iShares 20+ Year
Treasury Bond ETF. The proxy tracks investment results of the ICE U.S. Treasury
20+ Year Bond Index.
3 Brent Crude (ICE) Generic 1st âCOâ Future,
Bloomberg, March 9, 2020.