Back in 1987, right after the markets had experienced the famous “Black Monday” decline which took the Dow Jones Industrial Average down by 23% in a single day, the cover of the weekly Barron’s financial publication featured a suitcase with the frightened eyes of investors peeking out of its dark recesses, and an arm reaching out to wave a white flag.
This weekend—after the worst market week since the 2008 financial crisis—and one of the worst months since the 1930s—that image represents how a lot of poorly diversified, high-flying investors are feeling right now. The US stock market finished out a remarkably bad week of negative returns, including consecutive days of 1,000-point drops in the Dow and similar percentage declines in the S&P 500 index.
The Good News: If you’re open to hearing good news, consider that even after the market turmoil this week, your portfolio is still up about 3% over the past 12 months (February 28, 2019 to February 29, 2020). You are not one of those “poorly diversified, high-flying investors”.
Diversification is a bad word when markets are steadily rising and we’re all feeling a bit greedy. Likewise, that word is music to our ears when the unexpected turns to surreal and the bottom falls out. Diversification means you’ll never have all of your money in the top performing asset class. It also means that you will lose much less when markets inevitably and unexpectedly fall. Over the longer term, diversification provides solid market returns without the thrill of a roller coaster ride (see the “47-Year History of a Multi-Asset Class Diversified Portfolio” attached).
The Bad News: The bad news is that last week’s market events were caused by something real—the Coronavirus, more precisely COVID-19—and the uncertainty surrounding the possibility that it will spread into a pandemic—and if it does—how much damage it will do to the world economy. That uncertainty and the potential risks to our health and wealth have not gone away. A case can be made that the worst is behind us, or that this is just the beginning.
At present, fewer than 100 people have been diagnosed with the virus in the United States. That may provide false comfort considering that fewer than 500 have been tested. According to the CDC, the U.S. has tested 459 people for COVID-19 as of February 28th. In comparison, Guangdong, China, has tested 320,000 samples, and South Korea has tested more than 66,000 people.
We appear to be behind the curve. A laboratory test designed by public health officials to identify cases of COVID-19 in the U.S. has been bogged down by a botched rollout to states and inaccurate readings. There are currently no tests available outside of the CDC in Atlanta. That comes on the heels of budget cuts to the operational disease fighting budgets of the CDC, NSC, DHS and HHS by $15 billion in 2018. The Complex Crisis Fund designed to preemptively prevent and fight pandemics was eliminated in its entirety just last year.
Even though a lot of attention has been given to the virus’s impact on the markets, the more important issue is the health of you and your family. You—like Jae and I—should be closely monitoring the spread of the disease. You should know that simple surgical masks will not prevent wearers from contracting the virus. Medical experts say that we should be conscientious about washing our hands and using hand sanitizer and cleansing wipes.
There doesn’t appear to be a working coronavirus test at the moment, at least not in the US, so watch for the symptoms: fever, cough, runny nose, shortness of breath. There is no cure, but experts recommend resting and avoiding overexertion, drinking plenty of water, using a clean humidifier or cool mist vaporizer, and taking aspirin, ibuprofen or naproxen for pain and fever. In 98% of the cases, the disease is not fatal, but it does seem to be more dangerous for older people and those who suffer with heart disease, diabetes, lung disease and obesity.
Our wish is that you and your family will stay well, and that the virus will not become the pandemic that many (including market traders) are fearing. And please understand that we (and everyone else) don’t know what the market will do on Monday or next week. The downside action might continue, or we might experience a quick recovery. Historically, the best plan when bear markets present themselves is to sit tight. My goal for you is to follow the best plan we know and wait for the recovery. That being said, your individual ability to withstand volatility and risk not only dependent on the size of your resources and your time horizon before needing to withdraw money, but also on your psychological makeup. You have a carefully crafted financial plan and an investment strategy designed to maximize your wealth over a lifetime. That plan is our collective best effort to help you achieve your long-term goals. If you need a refresher on the investment strategy, an update to your financial plan, or have concerns about your psychological ability to stay the course, let me know. I’m here to listen and to help.
In the meantime, your most important priority should be on keeping you and your family safe. My suggestion is that you prepare for the worst, even as you hope for the best. I have attached a COVID-19 Fact Sheet that I compiled from reputable websites including the World Health Organization and the Center for Disease Control in Atlanta. I consider these to be the best and least biased resources available to help you navigate this crisis: www.who.int and www.cdc.gov.