Making Sense Of New Financial Reality

As I write this post the S&P 500 has dropped more than 23 percent since the peak when COVID-19 took center stage, even with yesterday's historical 11% rally. Interest rates have been cut to just above zero. The White House has just launch a bazooka $2 trillion stimulus bill, and our Canadian government just agreed on a $82 billion stimulus package.  Consumer spending—70 percent of the economy—is down.  Unprecedented fiscal and monetary measures by all means to combat COVID-19 for unprecedented times.

You have probably heard the industry message which I agree with “diversify, stay focused on the long-term and rebalance.” But is that still the right approach for your financial future?

My message right now is simple: If you have ample cash reserves, if your portfolio is well diversified (hopefully global diversified), your outlook remains long-term and you can rebalance your portfolio—you should leave everything as is if it matches your risk tolerance.  

I acknowledge that other investment approaches do exist—though our firm does not endorse them. Many clients have told me this crisis has them concerned—and feeling helpless—about their investment strategy. You might be feeling similarly. So, if staying diversified, focused and appropriately balanced doesn’t feel to you like you’re taking action, here are the options I want to share:

  • Add to your portfolio. Increase contributions to your retirement plan to take advantage of today’s rare buying opportunity of lower stock prices.

  • Shift your portfolio temporarily to a reduced equity position and readjust your asset allocation after the crisis has subsided.  **This would be a good time to review your risk tolerance too.

  • For retirees: reduce or stop monthly withdrawals from your portfolios and use your cash reserves instead for income for the next few months.  Recent fed announcements allow for a 25% decrease to RRIF payments.  

Long term, I believe that the stock market will rebound to new all-time highs — even though the markets might be volatile between now and then. In that light, I still believe our fundamental advice is sound, and I advise against pulling out of stocks entirely, and attempting to market-time to get back in.

If you have questions about these methods, or need some reassurance, we are here to help you. I can provide you with the investment and financial planning strategies—and sympathetic ear—that you may need right now. Email or call me anytime.

**The above is a good chart of market psychology.  It is particularly important today not to let emotions (especially powerful ones like fear and panic) govern investment and trading decisions and stick to your financial plan.

**Below is a chart on recent historical Black Swan events and the corresponding market recovery.  The "black swan theory" is a metaphor that describes an event that comes as a surprise ie/COVID-19 and has a major effective on society and financial markets.  Google black swan history for further details, or pick up Nassim Taleb book, Black Swan, the author of this theory