Both bull and bear markets are deeply psychological events. During bull markets, fear of missing out leads people to buy on pullbacks. When fear reigns, people often sell on rallies. We have been seeing the latter recently. For most people, those who are saving for retirement or taking reasonable monthly distributions, selling on rallies will turn temporary pain into a permanent planning failure.
According to Paul Vigna of the Wall Street Journal, “the average bear market wipes about 36% off the S&P 500 and lasts for about seven months.” Very few of our clients, if any, have 100% of their assets in stocks. Therefore, the depth of the downturn is likely to be far less. Also, periodic rebalancing allows us to take advantage of better prices as we sell some bonds to buy some stocks. After all, nobody can pick either the bottom or the top. Meanwhile, if we maintain sufficient cash flow, we can meet client’s monthly spending needs. Obviously, everyone’s situation is different. Many of those who sell out of fear will not meet their cash-flow needs, and many will be forced to spend principle. With extremely rare exceptions, we have not seen this in our office. Our clients are awesome people.
We anticipate some price pullbacks in corporate and municipal bonds. When people sell indiscriminately, mispricing often takes place. Not only do we not intend to be fooled by the mistakes of other people, we intend to profit from it if the occasion presents itself. If you don’t need to sell, you probably shouldn’t. Those who have the funds to buy depressed assets, and collect interest and dividends while waiting for recovery, should consider doing so. Some people who use margin, or poorly manage their cash flow, will be forced to sell. Their losses are our opportunities. Keep in mind that we cannot make blanket recommendations, but give our opinion based upon many decades of experience. We are always available to talk with you about it one-on-one.
Meanwhile, we will try to do our part to help during this national emergency. We are cancelling the upcoming breakfast in favor of an online presentation. For those of you who have not tried online meetings, this is an opportunity to learn something new. For those who intended to come to breakfast, do not hesitate to remind us that we owe you breakfast or lunch. We shall update you when we have the details worked out. Also, we have many older clients we need to think about and urge people who do not have a pressing need to avoid in-person meetings. We can do them online, via phone, or by mail.
Lastly, a word about the financial and human-capital condition of Treasure Coast Financial Planning. Since we became an independent company almost 25 years ago, we have never furloughed anyone for financial reasons. The firm has no debts. We are in a very sound financial condition due to the company’s conservative philosophy. As you may have heard us say, we are belt-and-suspenders people. Angela always keeps a large supply of Clorox Disinfecting Wipes in stock. We are prepared.