By Andrew D. Burish
These are extraordinary times. The COVID-19 pandemic has shuttered large swaths of the American economy, and financial markets have shuddered in response.
We’re here to listen to your concerns and to provide perspective on market conditions, which are unprecedented. In time, this national and global crisis will pass, but until it does, all of us will need to carry on as best we can.
Here are our thoughts on what is happening, and how we can work together toward creating a brighter future.
This month, the longest economic expansion in the nation’s history abruptly ended. As usually happens in such cases, the likely onset of recession pushed stocks down sharply as well. In fact, the S&P 500 fell into “bear” market territory — often defined as a drop of at least 20 percent from a previous peak — in a little more than three weeks, an unusually brief period.
The Federal Reserve has employed its full cache of monetary tools to keep the nation’s financial plumbing open; benchmark interest rates were cut to zero and new lending facilities created to provide liquidity to the corporate and municipal credit markets. All that money creation could eventually become dry powder for inflation when the economy catches fire, but that’s a topic for another day.
On the fiscal side, the $2 trillion rescue package is the largest in American history and will throw a lifeline to the millions of small businesses and laid-off workers especially vulnerable to a prolonged economic downturn. It is only a first step. Additional aid in the form of targeted stimulus measures is likely to be forthcoming in the months ahead.
The equity market’s immediate response to the rescue legislation — the largest three-day jump since 1933 — can be interpreted as a sign of growing investor confidence that the federal government recognizes the severity of the economic problem and will do whatever it takes to minimize the damage and shorten the recovery period.
On the medical side, however, the path out of the pandemic could be a long one, and until Americans feel safe in returning to their workplace and going about their daily lives, a return to full economic health is likely to prove elusive.
What we feel, and why
It’s important to recognize it is normal to feel afraid given our current circumstances. Not only are we experiencing fear for our physical safety and for that of our loved ones, but the economic and financial fallout from the COVID-19 pandemic also threatens our livelihoods and investment portfolios.
In certain ways, fear can be a useful emotion. Knowing what risks are worth taking has helped our species survive over time, often in physically fraught environments. Even in our modern world, fear can help us to recognize what situations to avoid.
Financial markets are a relatively recent development, however, and the same warning pangs that might have helped us avoid trouble in a world of saber-toothed tigers are not particularly useful or adaptive in a world of stocks and bonds.
It’s natural to become euphoric and chase after assets that are climbing and to panic and sell those that are falling — even if money won’t be needed for years or even decades to come. As a general rule, however, and as counterintuitive as it may seem, we at the Burish Group like investment legend Warren Buffett’s advice: Be fearful when others are greedy and greedy and when others are fearful.
Revisit and rebalance
So, what to do? We recommend you use this opportunity to sit down with your financial advisor and revisit your asset allocation, i.e., the way money is divided between asset classes such as stocks, bonds, cash, private equity, precious metals, real estate and commodities. Even if the desired ratios haven’t changed, uneven moves in the various asset classes likely will have skewed the current numbers.
By bringing those ratios back in line, you will effectively have bought low and sold high by adding to assets that have declined and trimming positions in those that have appreciated.
And, what not to do? Even in what might pass as “normal” economic times, predicting the short-term course of any financial market is usually counterproductive. That is especially true now, when no one knows how long the spread of the virus will last, whether it will recur in the fall or next winter and when a vaccine or effective treatment might become available.
Providing a financial buffer for times like these is precisely the purpose of crafting an individualized portfolio that reflects a family’s unique circumstances. A portfolio that has been thoughtfully constructed to account for risk tolerance, income requirements, tax implications and time horizon might already be “sheltered in place.” We’re here to help with that.
However, this is not to suggest the shelter is leak-proof; downside volatility is a fact of investment life and the necessary price to be paid for participating in the long-term growth of the American economy and its corporate components. The only alternative to downside risk is an all-cash portfolio, and even that bunker is likely to leak now and then and allow in damaging inflation.
We are here to listen and help. Working together, we will get through this crisis, just as we have so many other difficult periods in our nation’s history. In the meantime, please continue to follow recommendations for keeping you and your loved ones safe during this trying time. And please join us in focusing each day on the things for which we are grateful, which are many.
Burish is a financial advisor and managing director with UBS Financial Services Inc., 8020 Excelsior Dr., Suite 400, Madison, WI 53717 Any information presented is general in nature and not intended to provide individually tailored investment advice. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of UBS Financial Services Inc. As a firm providing wealth management services to clients, UBS Financial Services Inc. offers both investment advisory services and brokerage services. Investment advisory services and brokerage services are separate and distinct, differ in material ways and are governed by different laws and separate arrangements. It is important that clients understand the ways in which we conduct business and that they carefully read the agreements and disclosures that we provide to them about the products or services we offer. For more information visit our website at ubs.com/workingwithus. UBS Financial Services Inc. is a subsidiary of UBS AG. Member FINRA/SIPC.