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Coronavirus and your Portfolio Thumbnail

Coronavirus and your Portfolio

[Full script of the video below].

[Disclosure: Indices mentioned are unmanaged and cannot be invested into directly. Past performance is no guarantee of future result].

With the coronavirus originating in December, 2019 we currently stand at about 110,000 cases of coronavirus spread over 95 countries and nearly 4,000 deaths. In the United States we stand at just over 500 cases that have been identified and 22 deaths(1).  

Currently, these numbers represent a fraction of 1% of the world and US population.  While we should all have some level of concern and be making considerable efforts to prevent the spread of this virus, it is also important to keep our emotions in check.  More about that in a moment.  First, I would like to provide a little more information on the Coronavirus, also know at COVID – 19.

At highest risk are older adults, persons with chronic medical conditions such as hear disease, diabetes or lung disease.  For anyone in these categories it is very important that you take extra precautions to reduce your risk.  For those folks having extra supply of things such as prescription medications, facial tissues, aspirin, soap, hand sanitizer, etc. on hand certainly makes sense.  

If the virus is in your area and spreading, explore options for grocery delivery and minimize your time spent in crowded or public areas and wash your hands frequently.  Keep others informed of your health via email or phone. If you experience difficult breathing, shortness of breath, persistent pain or pressure in your chest, bluish lips or face and increased confusion, seek medical attention immediately via phone or in person if necessary but take all measures to prevent further spread of the illness(2).  

The CDC has also provided significant information on their website here.  I encourage you to take time to read the details from the CDC and to revisit this site for updated information and as a refresher.  There is a significant amount of misinformation on social media, the internet and through other sources.

The most important role the team here at Custom Wealth Management can serve for you during this time is to consistently provide you with any information and support to ensure you stay on track with your finances.  

To whatever extent, we will most likely all have feelings of fear, anxiety and/or guilt.  One of the realities of being human is that we are just not well equipped for assessing risk.  

Psycom.net put it this way a couple days ago:  

“It helps to look at coronavirus in the context of other illnesses to get some perspective. The coronavirus currently has a death rate of 2% worldwide, far below the 9% to 12% death rate of the 2002 SARS; though higher than the common flu in the U.S…..Despite the information we do hear, part of the trouble is humans are not great at assessing risk. According to Paul Slovic, Ph.D., who researches risk and decision making at the University of Oregon, how risk is conveyed determines how it’s interpreted. And, people use their emotions, not logical analysis to evaluate risks.” 

Recognize that where there is chaos there is often financial opportunity. Warren Buffett is the master of separating emotions from finances and the result has been clearly significant.  This is a great piece that helps us associate where we are in the stock market cycle and what emotions are tied to that moment.  While I have been doing this every day of my life for the last 21 years, I still experience these very emotions.  

However, I also recognize how important it is that I take control of my emotions and not allow the way I am feeling to influence my decision making.  That is not to say that my head is in the sand, actually, far from it. We are actively looking for opportunities for you to take advantage of as we see others allow their emotions to influence their actions. 

Our goal is to help prevent you from being part of the statistic you see here.  For those who do allow their emotions to get the best of them, investing becomes a very difficult challenge.  Unfortunately, many in our position as an advisor take the path of least resistance and simply sell off a clients portfolio because of their own emotions or the emotions of their client.  

What you see here is the result for the average investor being far worse than the major indexes over the last 20 years.  This is a very powerful piece to understand.  One of the greatest reasons for this is emotions.  The obvious rule with investing is to buy low and sell high.  But, one's emotions tends to lead them to do the opposite.  Sell when things are not good (markets are low) and buy when things are better (market are higher).  That is clearly selling low and buying high. 

Even worse, typically when one sells it takes them time to get back in the market.  You see, if you were fully invested over the last 20 years ending December 31, 2018 in just the SP500 your return would have averaged 5.62%.  However, if you had missed just the best 10 days of that 20 year period, your return would have been cut by more than half to 2.01%.  

Miss the 20 best days, and your return goes negative.  Missing the best 20 days out of 20 years led to a negative return over the entire time period.  Some may think it is hard to miss those best days, however considering most that sell do so on the worst day, or close to it, and does not get back in for some time, consider this fact:  Six of the best 10 days occurred within two weeks of the 10 worst days!  

The key is to put current activity into the context of the bigger picture and to acknowledge that biases can affect investor thinking. These factors may lead investors to believe that markets are doing worse or better than impartial analysis would reveal:

  • Confirmation bias: Giving more weight to trends you already believe in
  • Availability bias: Giving more weight to recent events
  • Framing effect: Letting the presentation of information affect your interpretation of it

Great news, you are not the average investor and you have a team that looks to take advantage of opportunities like this.  We are 100% committed to being available to discuss with you our approach through this.  Simply put, we are evaluating each position you own, determining if we should continue to own that position or trade to other positions that present more value in this market.  

The approach we take to managing your money is important to understand, which is why we focus on that approach in our meetings.  While it is easy to pass that discussion over in our meetings, it is times like this that your understanding to that approach is so important.

It is important that we work together to always protect your portfolio for your most immediate needs while also managing the portfolio for the future.  When you are within 2 years of retirement, we begin to shift some of your funds to cash as well as shut off the automatic reinvestment of dividends, interest and capital gains.  Between these sources, we want to ensure we have at least 1-2 years of your foreseeable withdrawal needs available.  

With regards to the bond portion of your portfolio, we use this for the next 2-7 years of withdrawal needs.  Bonds tend to be more conservative then stocks and give us a short term place to turn for withdrawals when the markets are volatile.  

As a matter of fact, since February 17, the US Aggregate Bond Index is up nearly 4% while the SP500 is down nearly 13%.  It is pretty neat to see how these different types of investment perform at different time and reflects how important it is that they are both included in your portfolio(3).  Finally, for the moneys that are invested for the longer term, 7 years and longer, we allocate these to diversified equity portfolio.  

During good times, this will be the part of your portfolio that you are most excited about (and wish you had more of during those times) and during bad times this is the part of the portfolio that you are most frustrated with (and wish you had less of in times like we are experiencing now).  You can see that we take our work for you very seriously and will continue to monitor and evaluate your portfolio throughout the current concern and beyond. 

While we are not taking the coronavirus lightly, we are also reminded of past outbreaks of viruses and diseases.  Our friends at First Trust did a wonderful job of putting together this piece that shows the occurrences dating back to 1980.  

While we have no idea how the coronavirus will reflect on this chart, we are reminded that these events do occur and the stronger the effort we all put into preventing the spread of the virus the better off we will all be.

I want to leave you with an invitation to call or email me with any questions you might have, with any clarifications you might desire on what we just discussed, if you are feeling your emotions taking charge or if you simply just want to check in.  

Most importantly, I hope that you and your loved ones are safe and sound and are able to remain free of the COVID – 19 virus.  Please be sure to refer to the CDC website I mentioned earlier frequently for updates and details on how to best prevent and treat this virus. 

Our very best wishes to you and your family and thank you for taking time to watch our commentary today. 


1. https://www.nytimes.com/2020/03/08/world/coronavirus-news.html

2. https://www.cdc.gov/coronavirus/2019-ncov/specific-groups/high-risk-complications.html

3. Market Insights, Weekly Market Recap - February 17, 2020. JP Morgan 

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