FPW Market Update: March 2020

March 17, 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.

After yesterday's drop, the stock market has now declined by around 30% from the all-time high reached 18 trading days ago on February 19, 2020. As of the close of trading yesterday, the Dow Jones Industrial Average² is down -31.7%, the S&P 500 Index¹ is down -29.5% and the Nasdaq Composite³ is down -29.6%. The market has now had either a daily gain or loss of 4% or more for 6 trading sessions in a row. The last time that this type of volatility occurred was during 1929. Yesterday's -11.98% drop in the S&P 500 Index was the third-largest drop on record only surpassed by the -12.9% drop on October 28 of 1929 and the -20.5% drop on October 19 of 1987. As a result of this large decline, the Bull Market that started in March of 2009 has likely come to an end. 

Bear Markets May Present an Opportunity for Increasing Wealth

One of the most important lessons that I learned during the 2008-2009 Bear Market was to be patient and always have a plan for increasing risk exposure to stocks. I also realized that if an investor was able to take advantage of lower stock prices to accumulate more shares during the Bear Market decline, they may be successful at increasing their wealth when the market rebounded. One reason for this is because of the large gains that are required to recapture previous price levels after the market has dropped. When the market drops -30%, it will have to gain 43% to get back to where it started. For example, an investor who has a loss of -30% on their portfolio will need to earn 43% to recoup that loss. The more the market drops, the higher this number becomes. For example, a -40% drop requires a gain of 67%. A drop of -50% will require a gain of 100%! Accumulating more shares during a large market decline should help increase an investor's wealth after market prices return to prior levels.

Today, when the S&P 500 Index traded down to 2,386, I rebalanced client portfolios to realign the Equity allocations back in line with their target weighting. For example, if your Investment Objective or Asset Allocation has a target Equity weighting of 45%, this weighting likely dropped to 40% or lower during the recent decline. As a result, the Equity portion of the account was increased to match the 45% target weighting.

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.

² The Dow Jones Industrial Average is a price-weighted index comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors. 

³ The Nasdaq Composite is a market capitalization-weighted index of over 3,300 common equities listed on the Nasdaq Stock Exchange.

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

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