The past few weeks have been surreal to say the least. Nearly everyone has been adversely affected by the coronavirus as the US has taken steps to limit its spread and to “flatten the curve.” The stock market dropped from its all time high of 29,551.42 on February 12th, 2020 down to 18,591.93 as of yesterday’s market close, over a 37% decline. The speed of this decline has not been seen since the Great Depression.
What should our response be during these times? First and foremost, the health and safety of our loved ones is paramount. I encourage you to heed the advice of the CDC and government officials in the coming months. At Everhart, we have followed CDC suggestions and are also following the Ohio stay-at-home order by working from home and canceling in-person meetings. Our aim is to be part of the solution, not the problem.
Second, regarding your investment accounts, I believe we should frequently call to mind: 1) what it is that you are actually invested in, 2) the history of those investments, and 3) best practices in light thereof.
1) It is easy to think of the stock market as some sort of nebulous creature that ebbs and flows to the tune of its own fickle will. But in reality, it could be argued that the stock market represents some of humanity’s greatest achievements. By investing in stocks, you have the opportunity to become a part owner of some of the greatest companies that the world has ever seen. Due to the innovation and creativity of these great companies, we now have more computing power in the palms of our hands than NASA had when they sent astronauts to the moon. Because of visionaries and entrepreneurs, we can now purchase goods from across the country and have them delivered to our door step the next day. It is nearly overwhelming to consider the amount of human advancement that is a product of these great companies. And as an investor in these companies, you get to participate in their success.
2) Next, consider what the world has experienced over the last 100+ years. There have been major world wars resulting in the death of tens of millions of people. There have been sicknesses and diseases such as the Spanish Flu of 1918 that claimed more lives than World War I. Among other things there have been threats of atomic war, presidential assassinations, natural disasters, oil embargoes, terrorist attacks, a housing crisis- the list goes on and on. And yet the stock market, which is comprised of a diverse group of companies, averaged around a 10% rate of return during the same time period. That diverse group of companies collectively found a way to grow over time despite all that adversity.
3) Obviously, there is no guarantee that history will continue to repeat itself. But in our opinion the storm we are currently facing is not any different than storms of the past. Therefore, we recommend you stay the course with your investments. In the same way that abandoning ship during stormy seas can be fatal, so too can abandoning your investment plan be catastrophic for financial returns. I encourage you to remain aboard the “ship” of these companies, for collectively they have weathered many storms of the past and have come out on the other side. Storms do not last forever. The world does not end very often. We believe this too shall pass.
However, while we don’t recommend abandoning your investment plan, there are a few proactive steps you may take when the market goes down. Here are three opportunities to consider with the recent market drop:
1) Refinance any existing debt. We anticipate rates to decline significantly over the next several weeks so now is a great time to consider refinancing your primary mortgage and other debts.
2) Tax loss harvest inside your investment accounts. If you have a non-qualified investment account, there may be an opportunity to sell investments at a loss which can be used to write off against your ordinary income tax and future gains.
3) Invest more money in the stock market. This stock market drop is similar to a sale at a department store- it is roughly 35% cheaper to purchase companies now than it was a month ago. To the extent you have excess cash, excluding your emergency fund, now is a great time to invest.
If you would like to discuss any of the above in greater detail, please do not hesitate to reach out. We are here to serve you and would be happy to help in any way! Be safe and we will talk to you soon.
Partner & Wealth Manager CFP®, CIMA®, CPWA®, CEPA