Volatility: What’s the Best Defense?

Thoughts and ideas on the recent market losses and volatility due to the Coronavirus scare, and general economic and political uncertainty. Recent panic caused by the spread of the Coronavirus (COVID-19) has led to a stock market decline and has many investors feeling anxious. While portfolios will see ups and downs and this is a normal part of investing, the recent sell-off was sharp. It is in times like these that our team can best serve you by providing perspective on how we see these issues playing out.

The Best Defense is a Strong Offense
Nobody knows where the market is heading. Therefore, we believe that research and pro-actively planning, and implementing strategies that factor in potential significant drops in the market is critical. This is a strong offensive play in the world of portfolio planning (especially for those closing in on retirement). And what we consider to be the best defense to market volatility.

When the market heads up, and we get by this event-driven volatility, having a portfolio that has allocations to global equities to take advantage of market growth is critical. And if the market continues to fall, it’s critical to protect your principal with allocations to Fixed Indexed Annuities.

Either way, this “Hybrid Income Portfolio” strategy balances protection and growth, regardless of where the market heads. This is especially significant now, as equity prices are coming off all-time highs and bond prices are also high, as their yields have fallen to all-time lows. As we have seen recently, market conditions can change quickly in both directions.

For these reasons and more, we believe a Hybrid Income Portfolio to be a powerful alternative to other portfolio strategies. It’s also backed by academic research and has proven itself time and time again.*

The Impact on the Global Economy
Though the impact on human life is at the forefront of everyone’s concerns, there are many uncertainties surrounding the potential impact of the virus to the global economy. The global economy was already fragile from the nearly two-year-long U.S.-China trade war and the spreading virus will likely impact economic growth. While more equity market weakness is possible as the virus continues to grow globally, the downside could be limited as governments and global central banks have possible tools to combat the potential death toll and economic impact.

From the human life perspective, China took severe steps to limit the spread of the virus including forced quarantines, limited social contact, and significant population testing. We expect other inflicted nations to follow suit. From an economic perspective, global central banks including the People’s Bank of China and the Bank of Korea have already increased monetary stimulus or plan to do so. As we have seen in the U.S., and, specifically the U.S. housing market, over the past year, easing monetary policy can provide a potential economic stopgap. Furthermore, in the U.S., given unemployment levels near 50-year lows, the consumer, the driver of the current economic expansion, remains in good shape. We do expect market uncertainty to continue but downside may be limited. We also think the impact to markets will vary by sector. Sectors related to travel, such as cruise lines, airlines, and hotels are already taking a hit. Online entertainment companies and streaming services are performing better.

The team here at Retire Smart Network will continue to monitor and update information about our nation’s financial and physical health. If you’d like to discuss your portfolio strategy with a retirement planner or have a question about any retirement/financial topic, simply reach out and we’ll make it happen.

P.S. Don’t forget the Best Defense is a Strong Offense when it comes to protecting your health too…proper hand washing, eating right, getting enough sleep, avoiding sick people, stocking up on meds, food, water and household supplies, and having an attitude of positivity and gratefulness. Worrying about health or finances isn’t a productive use of time. Embrace optimism and reach out to us at any time.

*Sources:

  1. Morningstar Analysis, June 23, 2017, Snapshot Report.
  2. Roger G. Ibbotson, PhD Chairman & Chief Investment Officer, Zebra Capital Management, LLC Professor Emeritus of Finance, Yale School of Management Email: ZebraEdge@Zebracapital.com, Fixed Indexed Annuities: Consider the Alternative, January 2018.
  3. Shift Away from Potential Risk and Toward Potential Return, Nationwide (Morningstar), 06/16.

A Soon-to-Be Retiree’s Guide to a Crazy Market

Nearing retirement? When the stock market tanks … Do. Not. Panic. according to this CNN Money article…

You’ve heard that before. But it’s hard to sit tight during a market freakout if you’re closing in on retirement. Losing a big chunk of your savings now could be devastating.

Retirees should avoid drawing from investments (in other words, selling stocks) when the market is down. It’s the same golden rule you’ve followed all along, but it gets trickier once you need to use the money in your nest egg — and have fewer years for your investments to bounce back. Read more…

Once you’ve read the article, contact us for a complimentary consultation with one of our affiliate retirement specialists. He/she can review your portfolio and allocations to make sure you’re in the strongest position possible in any market. Even if you have an advisor, it’s always a good idea to get a second opinion.