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A Q1 to Remember

Over the past few weeks, we’ve been telling clients not to check their portfolios so often. First, it’s stressful to see such steep losses after the longest-running bull market in history. Second, it’s most important to focus on your long-term goals, not short-term dips. Finally, seeing losses in your portfolio may push you to make decisions out of fear, which can lead to actions you’ll regret later.

That said, however, your newly released quarterly reports are highly likely to leave you feeling at least a little disheartened. No matter how much we’ve talked about preparing for perilous times like these, planning for it versus actually enduring it is about the same as watching a tornado on YouTube versus being swept into one in real time.

But even though Q1 was the Dow’s worst first quarter ever, and markets around the world also felt the effects of the COVID-19 pandemic, we at AMDG Financial stand by our advice: For emotional and financial turbulence alike, your best bet when you’re in the eye of a storm is to hunker down and trust in the preparations you’ve already made.

Q1 2020 Market Review

If you’re comfortable with how we’ve been managing your wealth so far, expect more of the same. As your interpretive adviser, we will continue to help you implement the kinds of investment opportunities that make sense for you and your portfolio. These may include:

  • Rebalancing your portfolio when warranted, to stay on course toward your long-term goals.
  • Tax-loss harvesting where practical, to offset the costs of recently incurred and/or future taxable gains. (Yes, we still fully expect to see future market growth!)
  • Roth IRA conversions when they may benefit your retirement planning.
  • Seizing other opportunities when your plans call for it. For example, if you’ve been holding a concentrated stock position to avoid incurring taxable gains, now may be the perfect time to reduce your risks and strengthen your portfolio by selling all or part of that position.

In addition to these steps, we’re also working with our business clients to help them apply for the new Paycheck Protection Program and Economic Injury Disaster (EIDL) loans offered through the Coronavirus Aid, Relief and Economic Security (CARES) Act.

If, on the other hand, you’ve begun to seriously question your course, think of current conditions as a stress test. Is the risk tolerance you thought you had holding up for you?

Ask yourself objectively: Can I tough out the fears I’m feeling right now? If so, we encourage you to stick with your existing investment allocations despite the angst.

What if you decide your portfolio is no longer appropriate for you? If that’s the case, let’s get together promptly to plan your next steps. Above all, your wealth should be structured to enhance your personal well-being. If that’s not what’s happening, we welcome the opportunity to help you adjust your portfolio accordingly.

Another question often asked during market extremes goes something like this: I’m okay with my portfolio mix, but why not get out of the markets temporarily until the worst is over?

Whether we leave your portfolio as is, or help you permanently reduce some of its risk exposure, we will never recommend trying to accurately time when to cleverly get out of, and safely jump back into, volatile markets. While nobody knows exactly when a recovery will occur, history has informed us of what typically happens when it does. This recent Wall Street Journal piece explains, using the bull market that began back in 2009 as an illustration (emphasis ours):

A surprising share of a new bull market’s returns pile up in its very early stages when people are most fearful. Take the one that ended last month. Putting $100,000 into an S&P 500 index fund on the day the bull began on March 9, 2009 and selling at last month’s peak would have seen that turn into $630,000 including dividends. Waiting just three months to make sure it wasn’t yet another head fake would have earned you only $450,000.”

In other words, while most of us are still assuming there’s no hope in sight, the markets can quietly and often dramatically make their big come-back … at least for those who have kept a portion of their wealth invested in them.

Additional research by Dimensional Fund Advisors (DFA) confirms that downturns don’t necessarily turn into down years. This chart follows U.S. market intra-year declines vs. calendar-year returns from January 2000 through Dec. 31, 2019. Note that even during the financial crisis in 2009, the markets eventually turned a 27% decline into a 28% gain in the same year!

As always, without the ability to see what is only apparent in hindsight, we encourage you to focus instead on that which you can control. Right now, that is mostly doing all you can to keep yourself and your loved ones out of harm’s way. Please let us know how we can help.

Click here to view previous news releases from AMDG Financial.

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