(914) 696-5300

There is a Silver Lining

Ways you can take advantage of current market conditions

There is a Silver Lining

As we watch the volatility in the stock markets continue (doesn’t that sound nicer than stomach churning swings?), we want to point out there are some silver linings.  While this time can feel rather unsettling, be careful of of falling into the trap of “this time is different”.  Every time the market takes a hit, whether a correction or a bear market, it feels different.  Throughout history, we have had many “booms” in the economy as well as many “busts”.  Once the dust settles from this market selloff, and history tells us it eventually will, those who stayed patient and fully invested will be rewarded.

Along the lines of it feeling different this time, let’s take a quick look at some notable market drops, particularly ones that occurred quickly.  We are currently in the middle of one and that can clearly be traced to Covid-19.  In December of 2018, the market dropped just under 20%.  Over a 5 month stretch in 2011, the market dropped just under 20%.  The market lost 16% over about two months in the middle of 2010.  Without using Google, can you tell me why those other drops felt “different”?  In all likelihood, you barely even remember them.  Keep that in mind a year from now.

In the meantime, market distress can bring some good news.  What opportunities should you consider?  Mortgage rates have fallen yet again.  Since January 2019 the rate on a 30-year fixed-rate mortgage has gone from 4.51% to 3.65% (as of 3/19/2020).  It was even lower a week prior.  If you plan to stay in your home for at least another three to five years, you may be able to reduce your rate by at least ½ percent;  refinancing your mortgage should be a consideration.  The amount you could save over the life of the mortgage should more than offset the cost of refinancing.

Given the recent moves in the equity and bond markets, investors should consider rebalancing their portfolios.  As an example, before the market sell-off, an investor may have had a portfolio invested 60% in stocks and 40% in bonds.  After the last several weeks, that mix may have changed to 50% stocks and 50% bonds due to a falling stock market combined with rising bond prices.  If an investor rebalances their portfolio from 50% stocks/50% bonds back to 60% stock and 40% bonds, they would be selling bonds that appreciated and buying stocks that could now be considered cheap.  In this case, the systematic approach of rebalancing automatically makes you “buy low and sell high”.  Correct us if we are wrong, but this is the name of the game.

We came across these interesting blog posts from our friends at Dimensional.  While no one can be certain when the exact market bottom will occur, history does tell us that investors are rewarded for continuing to bear risk during this uncertainty.  To prove this point, Dimensional shows what equity markets have returned after a subsequent downturn.  As you can probably imagine, those who stuck it out in tough times were rewarded.

As the great philosopher, Yogi Berra used to say, its déjà vu all over again.  We have been here before and will likely be here again in the future.  The key is being patient, following a sound investment process, and remaining invested through market cycles.  History has shown time and again that you will be rewarded if you do.

Yogi also used to say, when you come to a fork in the road take it.  When the market allows you to refinance at a low rate, rebalance your portfolio, or zig when everyone else zags, do it.  To find out how we can help you take advantage of these opportunities please contact us here.