A few weeks ago, in the midst of the current coronavirus market decline, our team indicated that we believe a reasonable amount of the market risk will be behind us once three things occur:
- A strong monetary policy from the Federal Reserve
- Fiscal stimulus from Congress
- Evidence that the virus is being contained which would lead to a gradual return to work in a reasonable period of time.
Since we outlined those outcomes on March 19, we’ve had some movement on at least two of these fronts.
In April, the Fed announced strong monetary measures to combat the liquidity and trading issues that were taking place in the cash and bond markets. With what we call an “open checkbook” policy, they basically said they would do whatever it takes, with unlimited funds for an unlimited period of time, to provide liquidity. By all accounts this has resulted in much better stability in the credit markets.
Simultaneously, Congress passed, and the President signed, the CARES ACT – an economic stimulus plan. The primary objectives of the bill are to provide cash to small and large businesses as well as to the unemployed. Despite some challenges in execution, the objectives of the bill have been generally well received and should help to offset some of the economic damage in the short-term.
As for the third piece of the puzzle, it is likely too early to tell. However, in recent days we are seeing evidence that the spread is slowing. Although there are certainly varying opinions on when and how to re-open the economy, we are certainly seeing movement in that direction. Therefore, the final piece will hopefully be in place to begin the rebuilding process. No doubt, we will not see an overnight rebound to the economy nor to the markets, but at least the bleeding would be stopped, and repair can begin. We look forward to seeing those hopes come to fruition.
Meanwhile, while we wait for the three elements of recovery to come together, our team at NNP is currently recommending several strategies that may make sense for some while the markets are down.
First, we are encouraging rebalancing portfolios. For example, if you had a 60-40 equity to bond portfolio, because of the market decline, it is likely closer to a 53% equity portfolio. We recommend going back to the target if your long-term plans have not changed.
Second, for long-term investors who need greater equity exposure, we recommend slowly adding to equity markets, preferably on down days, in small increments. We don’t know where the bottom of this market decline will be, so the installment approach makes sense.
Finally, there are several tax strategies to take advantage of while the market is down. These include tax loss harvesting, Roth IRA conversions, and gifting to heirs and others. It is cheaper to take advantage of these strategies while your portfolio is down, and interest rates are low.
There may be other strategies that are best for you during these uncertain times. We encourage you to consult your financial advisor for the most up-to-date recommendations.
At NNP, we are always willing and prepared to help our clients take control of their finances, particularly during this time of uncertainty. Should you feel less than confident with your current advisor or take an interest in exploring a new approach to wealth management, feel free to contact us online or give us a call (864)-467-9800.