I think that we can all agree that the financial response to recent global events has been astonishing in terms of both speed and magnitude. The spread of coronavirus sparked an initial wave of selling pressure in stocks as forecasters predicted weaker economic growth. Last week, we saw interest rates collapse as Treasury bonds saw their best performance in decades as a safe haven from risky assets. And last weekend we saw Saudi Arabia and Russia get into a dispute over oil production which led to a selloff in crude oil prices. The domino effect of those events is playing out in the markets as one event leads to other secondary events.
Rest assured that world leaders and central bankers are currently engaged in deep discussions of actions they can take to minimize the damage. We fully expect the Federal Reserve to continue lowering rates and even to restart Quantitative Easing (QE). The White House is working on an economic stimulus package as I write this letter. Yet we all want to know: “What can I do now?”
- Don’t panic. Panicking doesn’t solve any problem and usually makes it worse. If you can’t sleep at night, please call your Telarray financial advisor. We have designed our portfolios to handle a wide array of possible market and economic outcomes, and your own financial picture was stress-tested during your yearly Observatory session with your Advisor. We are standing by to remind you of the strategies we use over the long-term to improve your financial picture.
- Be like Warren Buffett. Warren Buffett’s favorite mantra is “Buy fear, sell greed.” The CNN Fear and Greed Index is at a level of 3, meaning “Extreme Fear” in the markets. This range has historically been a good time to buy stocks.
Consider the power of dividend-paying stocks in your portfolio; almost half of the stocks in the Dow Jones Industrial Average are now paying dividends of 3% and higher. Our portfolio exposure to value stocks is expected to perform well in the upcoming market rally.
- Harvest tax losses if you can. The IRS allows investors to sell securities if they have seen losses, and these losses can then be applied to offset any realized gains in the portfolio and up to $3000 of income to reduce income tax liabilities. In addition, you may also be able to carry these losses forward into subsequent tax years. Call your CPA/FA if you need more details.
- Add cash if you can. Consider adding cash to your investment portfolio through either lump-sum or dollar-cost averaging. The market selling will abate at some point. When it does, we will see bargains galore in stocks and sectors that we find attractive. Bonds are not as an attractive asset class to buy and hold at today’s prices because their yields have fallen close to zero. Market participants will eventually recognize that stock valuations are too good to pass up. You also might consider increasing your 401(k) contribution, which could have tax benefits, too.
- Rebalance your portfolio. This is the continual job of the Telarray Investment Team, who will evaluate whether it is needed and appropriate. Bonds have done extremely well with the rapid decline in interest rates, and it is likely that your portfolio may be over weighted in bonds.
- Consider refinancing your mortgage. Both 30-year and 15-year mortgage rates are at all-time lows and may fall even more as the Federal Reserve is expected to lower the Fed Funds Rate again after a 50-basis point cut last week. Call your banker for details. Your Telarray Advisor can also put you into contact with mortgage lenders that we know and trust.
- Roth Conversion. Ask your CPA or Advisor about converting your IRA 401(k) to a Roth. With the likely decline in value of your IRA, you may find it a good time to make that Roth conversion that you always wanted to do but couldn’t due to an excessive tax bite. Now, that tax cost may be much more affordable.