Stick to the Plan

Jonathan Baird |


What began as a relatively obscure story about a virus in China back in January has managed to bring the world to a virtual halt in a short period of time. Entire industries and geographic areas are at a standstill. The physical, emotional, and financial costs are significant, and it will take some time to recover. We sincerely hope and pray that you and your family are taking precautions for protection from the COVID-19 virus and treating the situation with the seriousness it deserves.

The stock market’s response to the virus has been swift and severe with some sectors down 25 percent and more in the first quarter. Beyond the global pandemic threat, we were also hit with an oil shock in the first quarter as Saudi Arabia and Russia failed to reach an agreement on production quotas. At one point, world oil prices dipped below $20 per barrel. While it’s nice to see gasoline prices come down, these prices are simply too low for the long run sustainability of energy companies.

So, what to do given the market correction? The short answer is: STICK TO THE PLAN! As an example, suppose your targeted portfolio allocation is 60-40, meaning a 60 percent allocation to the stock market and a 40 percent allocation to the bond market. After the drop in stock prices, however, your portfolio is out of balance with a 50-50 ratio of stocks and bonds. To STICK TO THE PLAN, we will rebalance the portfolio back to a 60-40 in several stages. This involves buying stock market investments (while at depressed prices) until we get back to the 60-40 target. We suggest doing this rebalance in increments. We also suggest waiting for the “dust to settle.” The market has been extremely volatile in recent weeks. This volatility will decline, hopefully sooner rather than later. When the market settles down to more normal trading activity, then we will begin the rebalancing process. 

A note to retirees

Many people are living off their portfolios and depend on a monthly check. Selling stocks that are down 25 percent to keep those checks coming would cause long term damage to the portfolio. To prevent that, when cash is needed, we sell out of the bond side of the portfolio, where prices have remained relatively stable. This process also helps to bring the portfolio back into balance.

For people in required minimum distribution (RMD) status, please be aware that RMDs are not required to be taken in 2020 under the recently passed CARE Act. This could be a way to save on income taxes for people who have other non-retirement accounts to draw on. Note that qualified charitable distributions may still be taken from the IRA direct to the charity even if you decide not to take any RMDs personally. Please contact us for any questions you have on these issues.

All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Investments in bonds are subject to interest rate risk, credit risk, and inflation risk.