As I sit here composing this blog post, Gov. Wolf of Pennsylvania is holding a press conference where he is outlining the next steps the state will be taking in order to reduce the spread of the Corona Virus. The measures seem quite draconian, but in the wake of a global pandemic what should we expect. I can not help shake the feeling that the last couple of weeks feel like the opening scenes of a B-Roll horror film, one where a simple virus brings about the apocalypse. While shopping, seeing the aisle of the grocery store completely empty, and wondering if I will be able to buy the simple life essentials for my family reinforce the uneasy feeling. Then flipping on the news, all of those fears are amplified as talking head after talking head go out of their way to paint a more and more negative view of the situation and to make sure we hear how they believe it is being mismanaged. One last stop on the business channel, and seeing the numbers go up and down by greater swings than anyone has ever seen, can simply compound those fears.
It is not hard to see and understand these fears, and concerns over your financial future as a result are just as natural. But what should you be doing? Should you sell and go to cash? Should you buy more stock? Is this when you should be buying gold? All good questions, that truly deserve good answers.
From my perspective everyone needs to take a collective pause, a deep breath if you will. First, taking any action in an environment where the markets are moving up or down 10% in a single day is like trying to catch a falling knife. If you sell, and the market shoots up the next day, you missed it, if you buy and the market drops the next day you lost it. And there really is no way of know which will occur the next day, worse yet, 20 minutes later and the narrative can completely change. When the traders, financial experts, hedge fund managers, and big banks are not even sure which way is up, there is no way for the average retail investor to be able to know either.
This is a good time to have a firm grasp on your personal financial plan. One of the core principals of the way we work with our clients is making sure we are all comfortable in the event of a black swan event in the market with the plan we have laid out be them. We discuss the downside as much, if not more than the potential upside. These conversations usually lead our clients to make slightly more conservative decisions, as they realize that unnecessary risk may make them more money, buy unnecessary losses may result in an altered lifestyle in retirement. I always recall a conversation between my father and me. I had been a financial advisor for all of 3 months. We were sitting at the picnic table at our cabin. I am blessed that my great grandfather bought it years ago, and it is still in the family today. I was bugging my dad to give me his money to invest. Again, and again he calmly replied “no.” Finally, I looked over and said “You don’t believe in me.” Well, that got a reaction, and a lesson that took me a while to fully comprehend, but I have carried with me for the remainder of my career. He told me clearly that he knew that where his money was, he was guaranteed to be able to get into his truck and drive to this cabin any time he wanted. When he was done being at the cabin, he could get in the truck and drive home. And that was what he wanted out of retirement. Of course, I could not help myself, and asked don’t you want better? Again, a simple response, with a lot of weight.
“If I gave you my money and you did better, I would have what a better truck? But, if I gave you my money and you lost it, and I couldn’t get in that truck and drive to this cabin, you and I would have a problem”
In that simple statement, my father clearly outlined goals and worse case scenarios. He knew he was getting what he wanted and taking more risk could mean losing that. This is the basic principle we start with when building a financial plan for our clients. If you have not had these conversations with your advisor, now may be a good time to start. As much fun it is to look at the upside potential, and the average rates of return, if you are not able to go through times like these, knowing that you can still get into your truck and drive to your cabin, then your over all risk tolerance is not reflected in your portfolio.
We must also keep in mind that these times will pass. How long, no one is really sure. Buy we have experienced issues like this before, the Spanish Doomsday Virus in 1918 is a prime example. It too ended, and when it did, people woke up, they had breakfast, that got dressed and went to work. We will still buy food, toothpaste, and gas. Our jobs will still need to be done, and the goods and services will start flowing again. There may be a few quarters of a rough economy and some folks will have some rough times, but we will get through it.
Spend this time, focused on your family and loved ones. Take stock in them. Finish up some of those home projects. Clean out the junk drawer. Organize the basement. Clean out the attic. Catch up on that show you wanted to binge watch. And know that the future is going to be better, and with the proper financial plan in place, you will get to drive back to your cabin.