What Should I Do Now?

March 23, 2020  |  

What Should I Do Now?

Volatile markets, constant news reports, social distancing and the necessary separation from aged or compromised loved ones has all of us on edge. We are all unnerved by the pandemic and its reverberations through our society.

Understandably, investors are asking themselves, “What should I do now?”

Before getting into those details, it’s important to put this market downturn into perspective. 

Perspective from past events

Mark Twain said, “History does not repeat itself, but it often rhymes”.  While none of us has much experience with a pandemic like the coronavirus, we do have evidence from other crises that have disrupted markets in the past.  What we learned from every one of these experiences is the following: markets reward long-term discipline. 

The chart below illustrates the growth of the world’s stock markets through many unique crises over the last 50 years.

Growth of a dollar 1970-2019

As you can see, the global markets grew 6,800% in 50 years despite many significant downturns.  

Perhaps a more important question to ask is “how do markets respond after a crisis in the short-run?”  Consider the performance of a 60% stock / 40% bond portfolio following some of the significant downturns that have occurred over the last 30 years:

Performance of a Balanced Strategy

As you can see, performance following a crisis tends to be strong over the following 5 years.  No one knows when equity markets will begin to recover from this most recent crisis.  However, history has shown that they will recover without warning.  Attempting to exit the market and then re-enter when things “settle down” may result in missing that opportunity.

Now some thoughts on strategy…

Portfolio management and taxes

During periods of volatility, it’s important to concentrate on what you can control in your portfolio.  We’ve previously discussed the importance of Loss Harvesting and Rebalancing.  Executed properly, these strategies can help increase the odds of long-term success when markets recover.

Another strategy we’ve written about in the past are Roth Conversions.  A Roth Conversion is the strategy of moving funds from a pre-tax retirement account into a Roth retirement account.  During retirement Roth IRA withdrawals are tax free, opening the door for tax planning opportunities.

Typically, these transactions make sense if the funds remain in the Roth account for at least 10 years, and the investor is in a lower tax bracket at the time of conversion. With stock values currently depressed, it may provide (depending on the current tax situation of the investor) the opportunity to convert pre-tax IRA assets to Roth IRAs and purchase equities in the Roth IRA. Any subsequent growth in the Roth IRA will be tax-free down the road.  Given that stocks now have higher expected returns now than they did a month ago, this could be an effective long-term strategy.  Please let us know if you would like to discuss this option further, and we’ll be happy to evaluate it for you.

Take advantage of low interest rates

Interest rates have fallen substantially since the beginning of 2019 (see chart below). 

Interest Rates

The average 30-year fixed mortgage is 3.65% as of last Thursday.  If you have a mortgage with a higher rate, and you plan to be in your home for at least 5 or more years, it may be worth considering refinancing.  Please let us know if you would like help evaluating refinancing.

Conclusion

Market declines can be uncomfortable, but they eventually end.  It can be difficult at times but taking the long-term view and sticking to your investment strategy and plan improves the odds of long-term success. We understand that each investor is unique and that one-sized recommendations do not always fit all. We are here to discuss and strategize about the particulars of your situation at any time.  Please contact us at any time as you have questions.

Registration with the SEC should not be construed as an endorsement or an indicator of investment skill, acumen or experience.  Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal.  Diversification does not eliminate the risk of market loss an A long-term investment approach cannot guarantee a profit.


About Patrick Runyen

As a Wealth Manager at Independence Advisors, Patrick Runyen, CPA/PFS, CFP® works closely with clients to implement wealth management solutions. He leverages his technical financial planning and consulting experience to assist clients with investment counseling, retirement planning, estate planning, wealth enhancement, asset protection, tax planning, and other personally significant financial decisions. CLICK HERE TO ASK PAT.
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