We know how important responsible investment management is as part of financial planning. Our approach to investment management has been and will continue to be, the most conservative strategy that will meet your financial planning goals. Asset prices have appreciated significantly since the financial meltdown in 2008-09. Last year was a particularly good year for the stock market because of the federal reserve’s action in lowering the federal funds rate 3 times while the economy seemed to be steadily growing at the “new normal” rate of between 2% and 3%. While it took 1 year for the S&P 500 to gain over 30%, it has taken 3 weeks to give back almost 20%. The decline is always quicker than the gain.
During the past year we have been investing cash funds in US Treasury bills because as the stock market was gaining, short term T-Bill rates were very attractive reaching 2% at the beginning of 2019 and staying above 1.5% until mid-February 2020. Macro events like Coronavirus and oil prices are out of our control so we focus on each client’s particular investment needs. Both the pandemic and oil price declines as well as the natural business cycle have increased the potential for a recession in 2020. Fear and greed generated by macro events accelerates asset price movements. As mentioned, asset value increases take much longer than declines as we are witnessing currently. We also know that the pain of price declines is twice as much as the satisfaction of price increases.
Not much attention is paid to bonds in general but in conditions such as now, bonds serve the purpose of cushioning a portfolio from large declines while continuing to earn and pay interest. Dividend paying stock serve the same purpose of cushioning. We will continue to nibble in areas of the stock market where we feel have value with lower prices.
The good news about the asset/stock price decline is that prices decline towards fair market value and as the economy and markets recover, the potential to earn returns closer to historic averages increases. As long as your long-term goals have not changed there is no reason to make any portfolio changes. In conditions such as we have now, fear causes markets to overreact just as greed causes markets to become overvalued. While we are not market timers, downshifts like these create additional awareness to both seek opportunities to add to long term portfolio growth and maintain the same care and diligence to tend to portfolios poised to generate income in retirement. Do not hesitate to call with any questions along the way.
Your SAS Advisors