By Thomas Lee, CFP, AIF, CHFEBC, Head Financial Planning and Investments, STWS
Every stock market correction is different as is every global health crisis. Obviously, we cannot know how the Coronavirus will play out. However, we do know that we have survived and thrived after every epidemic and pandemic over the past 50 years. Below we list some of the more recent ones including stock market returns at the 6-month and 1-year marks. Thankfully, there are some principles of investing that have worked throughout the worst historical stock market crises which can help us get through this current one.
What follows should not be taken as a recommendation for your personal situation. Consult your advisor.
- Diversification. If your investment objective includes investing in bonds, it is likely that you are investing in US government and/or municipal bonds. Much of the returns have been positive in these bonds since the Coronavirus emergence. Your TSP has two bond investment choices.
- You cannot reliably time the stock market. We believe that many of the biggest mistakes that investors make are during times of volatility. This usually entails some version of selling investments and moving into cash until things calm down.
- Dollar-cost averaging. If you are investing systematically (Ex TSP), keep doing it. It is quite possible that the money you are investing now will generate high returns over the long run.
- Loss aversion. We recommend that you fight this feeling. There are three techniques that can help. First of all, do not look at your investment statements. Secondly, do not pay attention to the daily moves of the stock market. Finally, do not pay attention to anybody making predictions about the stock market (including friends, family, financial experts, and office “experts”).
- Consider investing in your Roth TSP or do some Roth Conversion. Down stock markets can be opportune times to take advantage of Roth strategies. By contributing to the Roth TSP, when the stock market recovers, you will have built up tax-free growth inside of your retirement plan. If you have a traditional IRA outside of your TSP, you can do a Roth conversion with some or all of the IRA. You will be paying taxes now, but the tax-free growth may more than offset these taxes over time. Roth conversions can be particularly advantageous if you are able to pay for taxes with money outside of the IRA. Please consult your tax advisor about these strategies.
- Stick with your investment plan. We think this is the bottom line. You should change your investment plan when your financial objectives change, not when financial markets fluctuate.
Hang in there and wash your hands!
|Epidemic||Month end||6-mo % change, S&P||12-mo.% change, S&P|
|Pneumonic plague||September 1994||8.2||26.3|
|Avian flu||June 2006||11.66||18.36|
|Dengue Fever||September 2006||6.36||14.29|
|Swine flu||April 2009||18.72||35.96|
—Source: Dow Jones Market Data
Written by Thomas Lee, CFP, AIF, CHFEBC, Head Financial Planning and Investments, STWS. Tom has been named one of the top financial advisors in the country by both The Financial Times and Forbes (In 2020, Tom was named to the Forbes Best-In-State Wealth Advisors list and in 2019, he was named to the Financial Times Top 400 Financial Advisors.) In addition, he has appeared in Dow Jones and FinancialPlanning.com. Tom graduated Magna Cum Laude from Amherst College, and his investment approach is steeped in academia, utilizing principles from Nobel Prize winners, Harry Markowitz, Daniel Kahneman, and Eugene Fama. Tom also has a personal connection with the Federal Government—his father served 35 years with the Department of Commerce after completing a BA and MA in Economics from Yale University. The Forbes ranking of Best-In-State Wealth Advisors, developed by SHOOK Research, is based on an algorithm of qualitative criteria, mostly gained through telephone and in-person due diligence interviews, and quantitative data. Those advisors that are considered have a minimum of seven years of experience, and the algorithm weighs factors like revenue trends, assets under management, compliance records, industry experience and those that encompass best practices in their practices and approach to working with clients. Portfolio performance is not a criteria due to varying client objectives and lack of audited data. Out of approximately 32,000 nominations, more than 4,000 advisors received the award. This ranking is not indicative of advisor’s future performance, is not an endorsement, and may not be representative of individual clients’ experience. Neither Raymond James nor any of its Financial Advisors or RIA firms pay a fee in exchange for this award/rating. Raymond James is not affiliated with Forbes or Shook Research, LLC. For more information, visit: https://www.forbes.com/best-in-state-wealth-advisors/#4ed33f6b291dÐ’dThe FT 400 was developed in collaboration with Ignites Research, a subsidiary of the FT that provides specialized content on asset management. To qualify for the list, advisers had to have 10 years of experience and at least $300 million in assets under management (AUM) and no more than 60% of the AUM with institutional clients. The FT reaches out to some of the largest brokerages in the U.S. and asks them to provide a list of advisors who meet the minimum criteria outlined above. These advisors are then invited to apply for the ranking. Only advisors who submit an online application can be considered for the ranking. In 2019, roughly 960 applications were received and 400 were selected to the final list (41.7%). The 400 qualified advisers were then scored on six attributes: AUM, AUM growth rate, compliance record, years of experience, industry certifications, and online accessibility. AUM is the top factor, accounting for roughly 60-70 percent of the applicant’s score. Additionally, to provide a diversity of advisors, the FT placed a cap on the number of advisors from any one state that’s roughly correlated to the distribution of millionaires across the U.S. The ranking may not be representative of any one client’s experience, is not an endorsement, and is not indicative of advisor’s future performance. Neither Raymond James nor any of its Financial Advisors pay a fee in exchange for this award/rating. The FT is not affiliated with Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Past performance may not be indicative of future results. Holding investments for the long-term does not ensure a profitable outcome. Dollar-cost averaging cannot guarantee a profit or protect against a loss, and you should consider your financial ability to continue purchases through periods of low price levels. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications.