Wow! What a week we are having in the stock market.
The price of the benchmark S&P 500 has dropped some 340 points (as of this writing) since closing at an all-time high (3,380.16) on 2/19/2020, with most of the action occurring this week. The headlines are reading that the market is entering “Correction” territory, as defined by a 10% or more drop from the benchmark’s high. Most fingers are pointing to the expanding outbreak of the Coronavirus and its potential global economic impact as the primary culprit for the selloff. My objective in sharing this brief commentary is twofold: 1. To offer a bit of perspective to keep the current market move in its appropriate context and 2. To remind you just how well prepared you are for this type of a market environment.
Perspective is found by widening the viewpoint and looking at the current situation from a couple of different directions. One alternative view is to reflect on the recent past, where the same S&P 500 Index gained over 31% in 2019. Yes, you read that correctly; US stocks gained over 30% last year alone. So far this year, we are down approximately 5%. The cumulative return of the S&P 500 since March 2009 is over 330%, despite the recent selloff. With dividends reinvested S&P 500 Index’s “total return” is over 430%. We hope this helps put the recent drop (+/- 10% from the high) into a more balanced context.
Financial Coach Chief Investment Officer (CIO) Mike Traynor mused this morning that “market gains are invisible while the losses are acute”. This is an old story, but we believe it’s worth retelling. The joy we feel when the market goes up pales in comparison to the pain we feel when it goes down. The above referenced stats are indicative of this phenomenon, and Traynor went on to share that “progress is slow, steady, and silent while setbacks are loud, noisy, and scary”.
It is certainly “loud” right now, and you have every right to be nervous, anxious, and wondering “what’s next”? We do not know what’s next, but we do know that Financial Coach clients are as well prepared for this market environment as anyone out there. Why do we have this confidence, you ask?
1. We have been encouraging every client to maintain a sizeable allocation of cash in their portfolio and to use their recent market successes to bolster their “Store”, just in case we ran into this type of market scenario.
2. We “balanced” the stock allocation in most client portfolios with bonds, which over the last week have gone up, offering important “ballast” to the diversified portfolios you hold with our firm.
3. Don’t forget the “Core”. Many of our clients also have bucket #3 where a conservative and sometimes guaranteed strategy is being employed to manage volatility and offer another option for cash-flow when necessary.
One of our favorite sayings here at Financial Coach is, “don’t be surprised, be prepared”. You are prepared, and with the continued support of your trusted advisors and friends here at Financial Coach, you will handle this and future market storms with poise and composure. If you are feeling a bit uneasy, just need a pep talk, or possibly a more formal planning discussion, do not hesitate to call or email us. We are here to serve you and are excited to work with you through this very interesting time.
Owen Mulhern IV, CFP®
President, Financial Coach