Dear Clients,
Attached is a summary of the current Covid-19 cases in the US with NYC continuing to evolve as the epicenter of the outbreak and cases in all 50 states continuing to grow.
Current Theories:
- Covid19 appears to be 3x more contagious than the flu.
- A person can be highly contagious without symptoms.
- About 20-60% of the US Population may eventually be infected.
- Of those infected, about 5% require hospitalization. Roughly 20% of those hospitalized are between the ages of 20 -55.
- Of those hospitalized, 20% require ICU 1% of all infected).
- China began social isolation in mid-January to stem the spread of the virus. Roughly 2 months later, results are showing a slow-down of new cases and isolation rules are slowly being relaxed.
It is becoming increasingly clear that this situation will last a minimum of 8-12 weeks until, under the best scenario, authorities are able to level-off or reduce the number of new cases.
To achieve the best scenario will require even further social isolating/shelter in place strategies resulting in continued city lockdowns, business shut-downs and economic disruptions.
The market seems to be signaling a “cautious/hold” position until more information is available and federal emergency measures are announced.
However, I expect extreme market fluctuations and further losses as data is released at month end regarding unemployment claims, debt delinquencies, bankruptcies, earnings, etc. especially since 3/31 represents the end of 1Q20.
Portfolio Guidance:
- Portfolios (40Ks/IRAs) should have been invested to properly reflect the level of risk (losses) you can endure without panic selling. Even with proper risk assessments, a portfolio will have already experienced losses upwards of 10-40%.
- Losses of this magnitude are difficult but are a part of normal, long-term investing.
- Markets experience major disruptions roughly every decade with memorable disruptions just from the past 5-30 years from Brexit, 2008 Crisis, Sept 11th, Tech-Boom Crash, Long-Term Capital, Desert Storm and the Black Monday Crash of 1987.
- This is a black swan event that feels unlike anything else before and will create many economic quarters of uncertainty.
- You will likely see even further portfolio losses before stability and market gains begin to occur.
Would selling now protect you from further losses if markets continue to erode?
Selling right now would reduce further losses but it would also lock in current losses. The challenge is not when to sell. The challenge is when to buy back into the market.
Once data begins to improve, the market will rebound in large steps and if those moves upward are missed then you will also miss the opportunity to recover current losses.
Should I sell anyway?
You always have the final say in how to manage your life savings. If the volatility of this crisis is causing real stress and if you feel selling now would “harvest gains of the past 5 years” as some have suggested then you are free to sell.
The best analogy is whether you would have sold your home during the housing crisis. Unfortunately, those who did sell did so because they were in a very dire financial position and had no other choice. Most people maintained their homes and saw values fall and subsequently, over a period of time, return to more normal values and over-time rise even more.
*****If you no longer have an income source, have minimum cash reserves and must provide a means to “maintain essential spending” then a plan must be created.*****
Financial Game-Plan:
Step 1: Prepare a “Crisis Budget” for your own household to determine
a. Maximum spend to maintain essentials (housing, food, medical coverage, debt payments, etc.)
b. Number of months of Cash on hand to maintain crisis budget. Goal: 6-12 months of Available Cash
Step 2: If your months of Cash on hand are 6 months or less, please call/email to discuss options for increasing cash availability.
Step 3: Create a Balance Sheet (Assets and Liabilities) incl. printing all Liability and Asset Statements which we can review to discuss any concerns you may have.
These updates are intended to address general questions I am receiving and provide useful information.
If you have questions I am not addressing or friends/family that may benefit from the updates, please let me know.
It will take time but we will get through this crisis together.
Stephanie