Market DeclineSubmitted by Kaizen Financial Advisors, LLC on March 12th, 2020
We witnessed an extraordinary move in the financial markets on Monday, March 9.
The Dow Industrials lost over 2,000 points, as Coronavirus fears continued to worry investors. At the same time, oil prices lost nearly 25 percent, on news that Saudi Arabia was dropping crude oil prices by raising production. Meanwhile, the 10-year Treasury bond yield touched an all-time low of 0.318 percent during the trading session, as unnerved investors looked for some stability.1
In times like this, I frequently hear that some find it difficult to stay committed to your plan when fear has gripped the financial markets.
But for me, a quick look at recent history helps me keep these events in perspective.
Remember when the trade dispute with China ramped up back in February 2018? In just six trading days, stock prices had undergone a rollercoaster ride on their way to a 10-percent market correction. On February 8, 2018, CNBC reported that the Dow Industrials traveled 22,000-plus points over the course of February’s first full week of trading, due to trade-related fears.2
How about the 4th quarter of 2018? On October 10 of that year, the Dow saw an 19% drop, largely due to rising interest rates and global economic concerns. And who can forget the holiday market trading two months later? It was a breathtaking event as the Dow lost over 600 points on Christmas Eve, then soared 1,000 points the day after Christmas.3,4
In the past few weeks, I’ll admit that I’ve done a few “double takes” at my computer screen, as we’ve watched major swings in stock prices and movements in the bond and crude oil markets, but I know we have done our homework and hard work up front and your portfolios are positioned to get you through a down market.
Let’s discuss how we have positioned your portfolio to help you weather this storm.
- If you are working with Kaizen you have an appropriate portfolio based on your goals and risk tolerance. You have an Investment Policy Statement that we review with you annually to verify that you, and your plan, can handle jolts in the market.
- If you had an immediate need for cash, we have those funds allocated and earmarked in cash, money market accounts, or short-term bonds.
- If you are retired or close to retirement, we have several years’ worth of expenses in Bucket 1 which consists of cash and high-quality bonds, so you have the resources to wait out the downturn and won’t have to sell your stocks when they are down.
- A quick refresher: high quality bonds are negatively correlated to the market and should go up when the market spikes lower. This is exactly what we have seen with our bond portfolios up on average 3%.
Down markets create opportunities:
- If you are an accumulator and still saving for your goals. Continue to invest in the market when stocks are on sale. Think back to the 08/09 crisis. For clients that continued to save for their goals they were significantly better off if they continued making deposits into their 401ks, 529 plans, and brokerage accounts.
- Consider refinancing your mortgage. Mortgage rates hit all-time lows last week. If your mortgage rate is 4% or higher you are a candidate for a refinance which could save you money.
- Continue to shop. Consumer spending accounts for 70% of our economy and if spending slows enough stores may offer incentives to shoppers.
- Ask an elderly neighbor if they need help. They may be confined to their house and not want to go to the grocery store. It is time like these where we can build community awareness and help those in need.
- For many the pace of life has slowed. Take this time to do any organizing that may be needed. Reconnect with friends and family. The spread of the virus will eventually taper and when it does the pace of life will pick back up.
I also wanted to take this opportunity to reiterate Kaizen’s commitment to our clients:
We will continue to communicate with you, and we are here if you want to talk or need to review of your current investment strategy. We can talk in person, over the phone, or video conference. We have a variety of options available to meet your needs because we know in times like these you are relying on us to help you stay the course and make good financial decisions.
We have been through crises before and will continue to be the rudder on your boat helping steer you to your financial freedom.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Kaizen Financial Advisors, LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.
1 - cnbc.com/2020/03/08/dow-futures-drop-700-points-as-all-out-oil-price-war-adds-to-coronavirus-stress.html [3/9/20]
2 - cnbc.com/2018/02/09/dow-travels-20000-points-in-wild-week.html [2/8/18]
3 - cnbc.com/2018/10/10/us-markets-bond-yields-and-data-in-focus.html [10/18/18]
4 - cnbc.com/2018/12/26/us-futures-following-christmas-eve-plunge.html [12/25/18]