With another week of intense market volatility and uncertainty over the economic impact of COVID-19, we find ourselves in challenging but not unfamiliar circumstances. Like many of you, we’ve weathered crises like this before and have come out stronger on the other side. Modera has been around since 1983. We remember events like the Savings and Loan Crisis of the 1980s, the 1990s recession, the dot-com bubble burst of the early 2000s, the housing-credit fiasco that unraveled in 2007, and others in between. We remember having to hold steady when the world seemed anything but.
Is this time different? It certainly feels different. There is added anxiety over our health and the safety of our loved ones. There’s more news circulating than ever before, which can make us feel more uncertain rather than more knowledgeable. We also have not seen this level of closures and quarantining, with businesses, schools and communities having to find alternate solutions to maintain continuity.
Today, we want to offer reassurance and perspective because we understand that, in the moment of any crisis, things certainly feel different than they will in hindsight.
Here are a few of our thoughts on the markets, planning opportunities, and operational next steps:
Don’t be surprised if market volatility continues. Markets don’t react well to uncertainty and until there’s more understanding of how the pandemic will be contained, we’re likely to see continued volatility. But with that in mind, it’s important to note that not every asset class is down. Furthermore, there are some asset classes that are relatively cheap, which creates opportunities for rebalancing.
Stay on the roller coaster as mid-ride departures would be regrettable. What historical perspective helps us see more clearly is that we’ve experienced ups and downs in the past, and it’s impossible to time the markets. And, as much as we risk sounding like a broken record, this is exactly when the importance of a diversified portfolio is crucial. An asset class that performed the greatest one year can be the loser in the following year.
The big unknown is how long lasting the economic impact will be. The most stunning thing about this bear market has been the speed of stock price declines. Stocks were at all-time highs in late February. Since then, stocks have dropped more than 30% in 19 trading days. The volatility had been astounding, with several daily price moves of over 5% in both directions. At this point, stocks are experiencing a sudden re-pricing to reflect an expectation of a recession. The big unknown is how deep or long-lasting the economic impact will be. Until we have a better handle on the virus spread in the U.S. and abroad, it will be hard for stocks to find equilibrium.
We are encouraged by the fact that governments all over the world are considering steps to mitigate the virus economic impact. In the U.S, the Federal Reserve is providing support to the banking system, while Congress and the President seem to agree that fiscal measures are appropriate.
In the long run, science will eventually figure out how to deal with COVID-19, through vaccines, anti-viral drugs, or both. In the meantime, the infection statistics will continue to increase, although some of this increase will simply be the result of more virus testing, which is a good thing.
Eventually, the wild stock price swings will subside. Then, at some point in the future, we believe the markets will turn positive, and the economy will begin to recover its footing. Keep in mind a few statistics:
- There have been 24 bear markets since 1928; that’s about every 4 years on average.
- Stocks fell by an average of 33% in those bear markets.
- During that same period, stocks returned approximately 10% per year.
Wouldn’t it be nice if we could experience the good times and eliminate the bad ones! Sadly, this isn’t how the world works. There won’t be a bell ringing or an announcement when stocks reach the bottom. To enjoy the long-run returns as a stock investor, you have to be invested. Data shows that missing even a small number of really good days can have a dramatic impact on long term return. So, you have to BE invested and STAY invested. This too shall pass.
Until it does, however, there are some things that we can do to make the best of things from a financial planning perspective:
Current Practice Loans– Call your bank(s). Several banks that have offered up to 2-month forbearances. Others have granted temporary conversion to “interest only” instead of amortizing loans.
Mortgage Refinancing –A side effect of the market decline has been that interest rates continue to be low, which may mean it’s a good time to consider refinancing.
Cash is King –The old saying is true especially for times like this. We recommend having anywhere from six months to two years of expenses available in cash. The shorter end has generally been recommended for a couple who are both employed full-time. The longer end of two years is recommended for retirees. Keep in mind, however, that these are just rules of thumb and will depend upon your individual circumstances.
Estate Planning and Gifting – With current stock values, you may consider gifting stock for estate planning and/or gifting purposes. The strategy is that when the stocks rebound in value, the stocks will be out of your estate and can grow at the beneficiary’s tax rate or remain in a different entity, like a trust.
Uncle Sam Can Wait –On March 21st, 2020, the Treasury Department and Internal Revenue Service announced that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020. Taxpayers can also defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed. We recommend consulting with your tax advisor to determine the right strategy for your tax circumstances.
Check Your Cards and Benefits –As we are all staying home during this time, we recommend making sure you have your medical, dental, FSA/HSA cards easily accessible. In addition, check your current benefits online or by contacting your insurance company. Some companies are currently waiving the cost of COVID-19 testing. Any expenses associated with the virus, though, will need to be covered based on your underlying coverages.
Rebalancing –At Modera, we monitor portfolios daily, trading as necessary based on individual circumstances such as inflows to an account or cash withdrawal needs. We also maintain a disciplined rebalancing process to preserve the proper asset allocation as asset class allocations drift over time. Additionally, Modera’s Investment Committee may decide to proactively rebalance into an asset class if it feels the market has presented an opportunity.
Tax Loss Harvesting – We also look for tax loss harvesting opportunities in your portfolio, seeking to minimize your tax liabilities when appropriate. This is done on an individual basis, taking into account your unique situation and overall financial plan.
Retirement and Education Plan Contributions –Accumulators should stick to their contribution strategy during the downturn cycle. This is the perfect time to maintain a dollar cost averaging strategy. However, this should be balanced by your needs for cash liquidity.
Finally, we want to provide a brief update about Modera’s business continuity plans. As you know, Modera’s physical locations are closed for the time being, but we remain fully functioning with our staff able to process your servicing needs and available to address your questions and requests.
This again is where our long history as a firm has helped us; we have gone through situations like this in the past and have systems in place to manage without significant disruptions. With new developments unfolding every day, we will continue to post updates here as they become available. In the meantime, we urge you to take the utmost care of yourselves and your loved ones. Your well-being is important to us.
Modera Wealth Management., LLC is an SEC registered investment adviser with places of business in Massachusetts, New Jersey, Georgia, North Carolina and Florida. SEC registration does not imply any level of skill or training. Modera may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements.
For additional information about Modera, including its registration status, fees and services and/or a copy of our Form ADV Disclosure Brochure, please contact us or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov). A full description of the firm’s business operations and service offerings is contained in our Disclosure Brochure which appears as Part 2A of Form ADV. Please read the Disclosure Brochure carefully before you invest or send money.
This article is limited to the dissemination of general information about Modera’s investment advisory and financial planning services that is not suitable for everyone. Nothing herein should be interpreted or construed as investment advice nor as legal, tax or accounting advice nor as personalized financial planning, tax planning or wealth management advice. For legal, tax and accounting-related matters, we recommend you seek the advice of a qualified attorney or accountant. This article is not a substitute for personalized investment or financial planning from Modera. There is no guarantee that the views and opinions expressed herein will come to pass, and the information herein should not be considered a solicitation to engage in a particular investment or financial planning strategy. The statements and opinions expressed in this article are subject to change without notice based on changes in the law and other conditions.