FPW Market Update: February 2020

February 28, 2020 | Josh Zorger, CFP®, Fortitude Private Wealth

Receiving regular communication from your advisor is important, but it is of greater importance during times of increased market volatility. The following is an excerpt taken from the most recent newsletter sent exclusively to clients of Fortitude Private Wealth.

As of this morning, the stock market (as measured by the S&P 500 Index¹) has dropped a little over 15% from the all-time high that was reached last Wednesday, February 19, when the S&P 500 Index closed at a price of 3386. The market then rebounded today during the afternoon and closed the week with a total decline of 12.7% from the all-time high. I realize that this type of drop is scary, as the news headlines concerning the Coronavirus or COVID19 has caused a great amount of uncertainty with the global financial markets. Stock market corrections of this magnitude, though rare, are not that unusual historically. Last year there was very little volatility in the market, as was discussed in last month’s newsletter. But, I expect that this year will have a much higher level of volatility through the summer months leading up to the election.

Why is the market selling off?

The stock market (as measured by the S&P 500 Index¹) had increased in price by around 44% from the December of 2018 market low to the highs reached last week. That is a very large price increase over a short amount of time. Market advances with little-to-no volatility will often end with a large, sharp increase in volatility. I would recommend not focusing on the 'why' of what caused this drop. Instead, I would focus on what opportunities this drop will likely create for long-term investors. I would encourage you to focus on the long-term and not on doomsday scenarios of what could happen in the short-term.  

Will the market continue to decline?  

Though the current selling could get worse, I encourage you to focus on the following principals to help you prepare for and weather this market decline.

Increase your Savings Rate

If possible, increase your savings rate and increase deposits to your investment accounts during this decline. Some ideas to accomplish this are increasing contributions to your company retirement plan, such as your 401(k) Plan, or by making new contributions to your Roth IRA account.

Plan Ahead for Withdrawals

If you are currently receiving withdrawals from your account, I will attempt to liquidate asset classes that have declined less in value relative to other asset classes first when raising cash. Liquidating asset classes that have depreciated in value now will realize losses and will eliminate the opportunity for recouping those losses when the market rebounds in the future. If you have the flexibility and can postpone a withdrawal until later in the year or until after the market rebounds, I suggest doing that. 

Focus on Your Time Horizon

If you have a long-term time horizon for your investment assets, then I strongly recommend focusing on your time horizon and not making decisions to your risk tolerance and asset allocation based upon fear. I would encourage you to remember my favorite Warren Buffett quote, which can be found in the Berkshire Hathaway 1986 Chairman’s Letter, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

This information should be used for educational purposes only and is not intended to be specific investment planning, retirement planning or tax planning advice. We recommend that you consult with a professional tax advisor or qualified plan consultant before implementing any of the options presented.

This excerpt of the Fortitude Private Wealth newsletter, including all of the information contained herein, may not be copied, reproduced, republished, or posted in whole or in part, in any form without the prior written consent of Fortitude Private Wealth.

¹ The Standard & Poor’s 500 Index is a market capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Josh Zorger, CFP®, is the founder and president of Fortitude Private Wealth in Carmel, IN.

Logo for NAPFALogo for Fortitude AccountLogo for CFPLogo for LinkedInLogo for Fee Only