WIA MARKET UPDATE
February 25, 2020
The corona-virus appears to have inspired two distinct schools of thought among investors. Some investors currently favor opportunities that are considered lower risk, like Treasury bonds and gold, because they’re concerned about the potential impact of the coronavirus on the global economy. Others are piling into higher risk assets, like stocks, that could benefit if central banks (like the United States Federal Reserve) take steps to stimulate economic growth, reported Randall Forsyth of Barron’s.
During periods of uncertainty, like this one, the benefits of holding well-allocated, well-diversified portfolios become clear:
- By holding asset classes (e.g., stocks, bonds, and other asset types) that respond differently to the same market conditions, investors protect themselves from the poor performance of a single type of asset.
- By diversifying holdings within asset classes (e.g., investing in different parts of the world, investing in different industries), investors protect themselves against the poor performance of a single investment.
- Cash is King – in times like this. If you don’t have some, raise some. Look at areas in your portfolio that have done well, and take some profits. You’ll then have some “dry powder” to eventually reinvest in trophy stocks that have moved lower.
- Gold - allocating at least 5% - 10% of your overall portfolio can help reduce volatility and protect your purchasing power long-term. There are several exchange-traded funds (ETFs) available that can get you exposure to gold prices within your brokerage accounts. Precious metals have recently reversed their downtrend and are now out-performing the stock market.
Implementing a well-allocated and diversified portfolio that aligns with your goals, objectives, and risk tolerance can help provide reassurance when markets are volatile. Asset allocation and diversification are methods used to help manage investment risk; they do not guarantee a profit or protect against investment loss.
As of now, our indicators show us that the market has not reversed its uptrend. As of this writing, we are about 5% off the market’s recent highs. We were over-due for a correction. Pull-backs in the market of 5%-10% are normal—even in a Bull (up trending) market. We’d need to see another 10%+ decline from current levels in order for the market to reverse its uptrend—that’s when you’ll want to get defensive. We are not there, yet.
Please talk-through your concerns with you advisor. Avoid reacting out of emotions. Review your plan and adjust as needed. This will help you sleep better, and be better prepared to weather a market storm.
Greg Womack, CFP