It feels like unprecedented times, and from many angles, it is. We will not deny that. We are in the thick of a severe reality: a pandemic we are not prepared for, an oil crisis we have not seen in a while, and the resulting impact on the economy, the markets, and our portfolios.
Never have we, as a society, had access to so much information so quickly. It can be overwhelming, and the minute-by-minute updates reinforce the unpredictability of the situation. The compounding media headlines, data, and ongoing conversations present an alarming reality.
Articles are telling us to “cancel everything,” “stay inside,” “wash your hands,” and that does not include headlines discussing the bear market we have now entered and the specific sizeable swings we see each day.
First, let’s remind ourselves what we have done as prudent, proactive planners, and then we will discuss what we are doing now in the context of this uncertain pandemic.
After 11 years of a bull market, it can be easy to forget what risk is like, but remember that we have planned for market volatility.
Here is what we have done:
- We designed a strategy based on your life’s long-term plan. We do this so that unexpected life events (i.e., coronavirus and oil shock) will not derail your plan.
- We constructed a portfolio customized to you; our portfolios rely on long term data and specific security selection that meets our systematic screens.
- We purchased bonds for stability in the portfolio, even when it was not sexy.
- We recommended adequate cash even when interest rates were low.
The Real Question
But what are we doing now, and how has the current environment impacted our daily efforts to keep you on track?
Imagine an iceberg. What you see is above the surface – the face to face conversations with your FJY advisory team, the investment committee updates, the value of your portfolio. Underwater is the bulk of activity we do on a daily basis to protect you and keep you afloat. These include:
Risk tolerance (how you feel in a market downturn or recession) has become more of an abstract concept with every passing year since 2009. Now we are experiencing what we have been talking about. We are reassessing your asset allocation and ensuring it is suitable, given this real-world example of market risk. We will communicate with you about this if appropriate, and don’t hesitate to reach out if you have any questions.
While we do not recommend selling depressed assets, we want to be prudent in today’s environment. Your cash needs are very different from your long-term portfolio’s risk tolerance. For each circumstance, we will consider questions like:
- Do you have adequate cash on hand?
- Do you have cash needs coming up in the next 12-24 months that we need to plan for now?
We will proactively reach out if we think a change needs to be made to increase the cash in your portfolio. We invite you to contact us too to address your specific situation.
We are also taking this time to examine what timely strategies we can utilize to make lemonade out of lemons. Some strategies we may consider include:
- Harvesting tax losses – This strategy helps mitigate taxes by capturing losses of certain securities to either offset gains from earlier this year or build up losses to carry forward. We buy a substitute investment, approved by our investment committee, for that asset class for a temporary period of time.
- Investing excess cash
- Refinancing – Interest rates are at all-time lows. This means as prudent financial planners, we may want to evaluate a refinance for your existing mortgage(s).
- Rebalancing – Prudent realigning to buy low and sell high say more. It may seem counterintuitive, but improves returns over time.
We will continue to keep you updated. At FJY, we are committed to staying unruffled in times like these, but we also recognize that this is life, and sometimes life is uncertain.
We have faith in the future growth of the markets, in our discipline to stick to the strategy, and in our patience, as we know things may likely get worse before they get better.
Side by side, we are in this together and have your back. We are prepared to work from home and have long focused on tech capabilities that enable us to do so seamlessly.