The latest from our CFP
This too shall pass: an interim bulletin on the Coronavirus
The Coronavirus situation continues to play itself out, as have all the numberless "crises" that have gone before it. We realize this is a challenging time for investors and we wanted to provide some context around the situation as it stands today.
First, it remains impossible to predict when and how the Coronavirus situation and recovery of the global economy will be resolved. Likewise, it is impossible to know when and how the markets will anticipate (or react to) such a resolution, but we do have confidence that markets will eventually recover and move to new highs as they always have following severe events of the past.
Financial media persists to report this as an unprecedented crisis in the economic and financial life of the world, and suggesting that it is effectively insoluble. Neither contention is accurate and we have immense confidence that the policy response will adjust sufficiently sooner or later to address the issue, but that isn't why we're writing you today.
Our purpose is simply to suggest that-difficult as it may be-we take our focus off the onslaught of catastrophic headlines, and put it where it belongs: a) on your goals, b) on our long-term plan for the achievement of your goals, and c) on your portfolio as the long-term funding medium for that plan.
We didn't and don't invest as a speculation on the outcome of current events. We invest pursuant to principles that have always prevailed in the past. Chief among these, as President Kennedy observed, is that "no problem of human destiny is beyond human beings."
We've elected to be guided by history as opposed to headlines. Invited by the media to subscribe to the bizarre thesis that "This time it's different," we respond instead with "This too shall pass."
You would not be human, we don't think, if you didn't experience some degree of fear at the direction of current events from time to time. The great achievement, at times like this, is simply not to give in to fear. In a very real sense, our whole job is helping you toward that achievement.
While this is a most uncomfortable time to be invested in equities, we feel we will look back on this period as a Great Buying Opportunity. We anticipate that as the pandemic peaks things will once again move towards normal. When that happens, if history is any guide, stocks are likely to rebound strongly as the perceived uncertainty dissipates. If you have extra cash on hand, we feel this will in hindsight be viewed as one of the great occasions to buy the great business of the U.S. and the world at sale prices. Likewise, if you have bonds in your portfolio, this may be a good time to discuss whether to consider deploying some of that allocation into equities. Neither of these statements are in anyway a prediction that markets have bottomed, which is impossible to predict. Rather, our statement is a testament to the value we are seeing in the marketplace at these prices. Please call our office if you would like to explore this topic further.
A note for retirees who are dependent on their portfolio to meet their monthly living expenses. We have long shared our internal process of moving the monthly redemptions from a blend of selling stock and bond funds, to selling only bond funds when the broad markets have declined 20% or more from their previous peak. This strategy is designed to allow the stock funds to recover without selling shares of great businesses at depressed prices. We have now reached that point and are in the process of updating all monthly distributions to be redeemed from your bond funds only. At a future point when markets have recovered sufficiently, we will evaluate rebalancing your overall portfolio to target to "refill" the bond allocation.
One last point: steep market declines are part of any stock investment strategy. We have built in a significant margin of safety in our planning projections through the use of our Monte Carlo market simulations and through our "Lean Years" scenario. In our most recent 12/31/19 quarter-end projections, we built in "3 Lean Years" implying a 30%+ market decline at the onset of the planning period. Thus, this type of decline was already built into the planning projections and Monte Carlo pass rate prior to the recent market fall.
Thank you for your confidence. We know times like these may cause heightened anxiety. We are always here if you need us.
