At a time when we are being inundated with information about the Wuhan coronavirus and its effects on world economies and markets, I thought you might be curious about The Kelly Group’s take on all of this from an investment standpoint. Actually, if you’re a long-time client, you can probably already guess what I’m basically going to say. But occasionally when we’re being faced with an onslaught of 24/7 scary headlines, it doesn’t hurt to take time out to remind ourselves of some basic verities of investing.
I do want to emphasize that my comments below are in no way meant to diminish the effect this illness may have on many people’s lives. We are all learning about this new and unpredictable disease together and its eventual trajectory is still very much unknown.
Nevertheless, from a purely investing standpoint, I feel quite confident that, barring a change in your own financial circumstances, the wise course is to stick with your plan. We have found that those investors who react to the movement of the markets, rather than stick with the wisdom of their carefully constructed personal financial plan, invariably fail. On the other hand, the long-term strength of wisely constructed, diversified investment portfolios based on such a plan and patiently adhered to is well proven.
I started investing more than 30 years ago in the midst of another fear-inducing crisis, the Savings & Loan scandal. Since then there has been a broad array of “end-of-the-world” type crises of various shapes and sizes that temporarily rocked the markets. Just a partial list in the last 30 years includes: The Persian Gulf War and the later Iraq War, the ongoing Afghan War, the Los Angeles Riots, the bombing of the World Trade Center, Y2K, the dot com bubble, Hurricane Katrina, government shutdowns, 9/11, the housing crash, the 2008-09 Great Recession, Brexit, etc. The crises based on health scares alone make quite a list: SARS, Avian Bird Flu, swine flu, Ebola, the Zika virus.
These crises generally share two traits. First, at the time of the particular crisis, there was a sense that it was an insurmountable problem, that the investment damage from the resulting market turmoil would be irrevocable, that 401(k)s would turn into 201(k)s and stay that way, and that—unlike past crises that had come and gone—“This Time Is Different.”
And, second, it turned out that from an investment perspective the particular crisis was not fundamentally different, that the equity markets did recover and continue their long-term upward swing, and another four-word phrase would have been more appropriate: “This Too Shall Pass.” In fact, those investors most damaged were those who sold in the heart of the crisis and did not reenter the market until well after it had passed—when everyone was feeling more optimistic and a substantial market recovery was already well under way—thereby locking in their losses.
To be sure, at The Kelly Group we are routinely monitoring the markets and our strategists. During major market corrections we evaluate the situation and use the opportunity to rebalance your portfolio and take advantage of buying opportunities.
For those of you receiving distributions, we may take a higher proportion from the fixed income side and from those equity holdings that have not been as affected by sell offs as other holdings. Meanwhile, for those of you in the growth phase of your plan, remember that a crisis like this often presents buying opportunities for our strategists.
Markets need healthy corrections, and incidents like this coronavirus often trigger them. This is not the first or last time we will go through something like this. Yet solid companies will continue to provide services and products and to adapt to the world around them. In the long term the markets generally reflect that adaptability. Indeed, in troubled times like these, the long-term resilience of our markets (and our free market economy) should be a source of comfort to us, as ballast in an often-stormy sea.
I take great pride in the fact that the bulk of my wealth is invested in a portfolio much like the portfolios we build for our clients. I understand the emotions investors feel when the markets are roiled. So if you do have questions or concerns, please do not hesitate to reach out to us. That is why we’re here. And have a wonderful weekend.
Bryan E. Kelly, CFP®