To our non-client readers – below is an excerpt from a client wide email sent at the end of February 2020, a point at the onset of the pandemic when markets where tumbling, and there was great worry and uncertainty. A very important time to be pragmatic and calming.

 

 

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This week has not been pleasant for investors. We want you to know that we are monitoring the markets on an ongoing basis and are available to discuss your portfolio at any time.

 

The correction in markets is due to a combination of extreme valuations coupled with an exogenous fear, that being the Coronavirus. As businesses grew over the last several years, valuations became stretched. Generally, it takes a stress or fear event to drive valuations back down to normalized levels. Over the past couple “mini-corrections”, these exogenous events/fears included Brexit and the dramatic drop in oil prices. In those cases, Brexit was not materially detrimental to capitalism around the globe, and if you did not own oil companies the drop in oil also did not disrupt the momentum of capitalism for you either. Unfortunately, in this instance, the Coronavirus will have an impact on capitalism, and thus, this correction appears to be different.

 

It is clear that there will be an economic impact but the magnitude of this damage is hard to predict as the number of cases continue to rise globally and there is minimal insights into medical advancements. We do not know if the market will be higher or lower in the next several months, no one can accurately make this prediction. Our portfolios are purposely constructed using great business, including mutual funds and ETF’s that also own hold long-term businesses.

 

Your portfolio is reviewed on a regular basis ensuring they follow long-term oriented investment philosophies. We will be reviewing your accounts in the next few weeks and we will email you with your personalized recommendations. As we review your accounts, we will remain unemotionally focused on achieving your financial goals. During periods of heightened volatility, it is easy to let emotions drive decision making and we will ensure that does not occur. We will remain cautious with our outlook, while at the same time, understanding that these periods of heightened volatility present opportunities to buy businesses on sale – everyone enjoys a sale, and we hope to find great businesses that are oversold. This may take time.

 

Please remember, your accounts have been set up to achieve your goals:

Your personal asset allocation has been designed to ensure short-term needs are achievable without any permanent loss of capital (ie., a house purchase, car purchase, or other short term need); and has been designed to ensure mid and long-term goals are achieved, and temporary declines, while difficult to watch, are the price we pay for achieving those longer term oriented goals. To achieve long term results, remaining invested during times of heightened volatility can be imperative to your long-term returns.

 

  

 

The chart above shows a hypothetical investor investing $10,000 on January 1, 1980 until July 2018. Had this investor remained invested during the entire period they would have grown their investment from $10,000 to $708,143. However, if they missed only the 5 best days of the market during that term they would have grown their investment to only $458,476, a difference of $249,667, or 35% less.

Over the last 10 years, 6 of the 10 best trading days occurred within one week of the 10 worst days. Essentially, the time you are most likely to make a bad emotional decision is exactly the time when you need to remain invested. As the data shows, missing those best days can have significant consequences on long term returns.

 

For further reading, click here to Own Your Future or click here to contact any member of of our team.