Financial Planning In The Coronavirus Economy

As we’ve discussed many times before, both in person, as well as in our writings, investment risks and expected rewards are related. We are certainly experiencing that now. Here are three encouraging thoughts to keep you grounded right now.

1. PREPARATION BEATS PANIC – While conversations about risk and return during stable times may seem abstract to you, that perhaps we’re “checking the boxes” professionally, we intentionally do this to understand YOU and assess your goals and risk tolerance, in order to invest each account into its most appropriate model. You might have a completed financial plan or retirement plan that drives the conversation about necessary returns to achieve your goals. Even if you do not have a formal plan, our portfolio modeling conversations always center on financial planning principles, i.e. your age, circumstances, risk tolerance, income needs household goals, and the intent for each account.

We have already collaborated with you to help identify the right balance to strike between accepting risk and “reward”, or necessary returns for each account. We then build and manage each broadly diversified portfolio using thoughtfully-researched investment positions. We’ve already done that…together.

We’ve already prepared the hard work on the front end to assemble your purpose-driven portfolios. Today’s hard work is recognizing that your investment plan is in place, we have accounted for periodic declines, even severe ones, and “active patience” is the best strategy for riding out this current environment.

2. PATIENCE WINS – Our advice on investing during volatile times remains the same: patience wins. That is fact-based going back 75 years to the end of World War II, i.e. the ‘modern investing era.’ Numerous studies conclude that sticking with initially-modeled portfolios through market cycles leads to investment success. Risks do drive expected returns.

However, we also understand that for some people fear may be stronger than greed, which motivates some clients to sell or change models for fear of “losing everything.” These few clients usually make emotional portfolio changes at or near market bottoms. They receive the initial satisfaction that they “did something” to preserve their capital; though ultimately most of these clients wind up financially lesser off because they either don’t go back into their previous models, or they re-enter after the news has brightened and the markets recovered past their sell point. Consider this:

As a train needs its engine to move, markets require risks to drive them onward and upward.

Rather than focusing on daily headlines and account balances, try to understand that your portfolios are already geared to weather today’s declines, and to recover when the recovery happens. Since 1945, the market has always recovered, so why should this time be any different? Ben Carlson, author of “Don’t Fall For It: A short History of Financial Scams,” wrote:

“Every successful investor must understand there is a sacred relationship between risk and reward. There is no proven way to earn a high return on your capital without taking some form of risk nor is it possible to completely extinguish risk from your investments.”

We simply define “high” in the above statement as anything above cash returns, and specifically not inappropriately aggressive. That would be imprudent.

3. WE STAND WITH YOU – As we work our way through the pandemic’s effects on our social lives and your portfolio, you might be wondering if your risk tolerance isn’t what you thought it would be during a crisis like this. If so, consider yourself normal! Even those who cognitively understand the wisdom of staying the course, emotionally it’s not easy for some. We still suggest that you reassess after the storm has passed. You wouldn’t expect someone to assess the damage to your paint and roof in the middle of a hailstorm, so why do that with your portfolio? Sit tight, let it pass. Once things stabilize, make sure to let us know that you’d like to revisit your risk tolerance and goals in order to ensure your portfolio modeling is correct.

We cover this during your Annual Review and periodic conversations, but if it’s on your mind now, please contact us. Together, we’ll objectively look at your situation and feelings to continue to chart a sensible course forward.


As you may know, Congress and the Treasury Department have worked together to provide relief to individuals and small businesses, such as the CARES Act. Click here for an excellent CARES Act Commentary by Steve Leimberg, a well-regarded author in our field.

Some highlights:

  • Tax filing deadlines have been extended to July 15.
  • Retirement contribution deadlines, such as IRAs that had an April 15 deadline, are also moved to July 15, with some deadlines extended to tax filing dates on extension.
  • Required Minimum Withdrawals are suspended for 2020. You do not need to take them. If you have already taken your 2020 RMD, and would like to put it back into your IRA, you are able to do so up until July 15. This does NOT apply to RMDs taken in the month of January, only for those taken February 1 and later. Further, RMDs from non-spouse beneficiary IRAs are suspended, but if you’ve already taken the RMD, you can not roll it back into the IRA, since non-spousal rollovers are disallowed anyway.
  • Mortgage Forbearance – While recent regulations have allowed for certain homeowner’s mortgage forbearance relief, our mortgage experts warn about being careful in this area. It should only be used as a last resort, especially since it has not been made clear how your credit rating may or may not be affected. It could be very difficult for a credit bureau to determine if your situation is reasonable, or a late payment. Be careful, check with a mortgage expert before going that route.
  • Conversion to Roth IRA – This could be a good year to convert part or all of your IRA to a Roth IRA: 1) if your 2020 income is expected to be much lower, then perhaps the tax cost of conversion makes sense, and 2) converting existing IRA assets at lower market prices could provide you with a significant tax benefit as the assets recover in the tax-free Roth.
  • Withdrawals from Qualified 401k/ERISA Retirement Plans – There are many, so if you need relief by accessing your retirement account with us or your company-sponsored plan, PLEASE contact us first as there are also potholes to consider.

Finally, Winston Churchill wrote, “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” We shall get through this, and patience is one of our greatest allies. Stay strong, stay healthy.

Jeff Garell, CFP®
Michael Campbell
Bob Emmer, CFP®

“Active Patience” Pays Dividends

Spring thaw came very early for the capital markets, proving once again that sticking to your model and investment plan is the soundest advice during most market downturns. Our firm refers to this as “active patience,” meaning that you consciously do your best to remain calm and invested in your model while the news headlines swirl about.

Since World War II, the markets have recovered 100% of all declines, with recovery times averaging around 2 years, ranging between a few months to 4+ years. Patience wins. Baseball players who get a hit just 30% of the time produce a hitting average of .300, which qualifies for the Hall of Fame. Markets have recovered EVERY TIME. We just don’t know how long it takes to recover. But it doesn’t take decades. You actually have time for your accounts to recover from downturns, and patient investors are rewarded with the returns they need to maintain sustainable retirement income.

Another baseball analogy: Assume a 5- to 7-year market cycle is akin to a 162-game baseball season between late March and early October. If your team goes on a losing streak in June that drops them from first place to a few games back in second place, is the season lost? Do you expect your potential World Series team to win every game during the year? Of course not. Do you expect your accounts to always be up every day and every quarter? Sometimes they are down for a whole year (2018). But the focus is on the whole season, not just a handful of games. Our focus is managing your portfolio to last your lifetime, not just a year or two.

So, back to headlines. Seems lots of people are still worried about a potential recession affecting their portfolios. Once again, paying more attention to the headlines rather than sticking to an investment model has hurt those investors who made changes in late 4Q 2018. We don’t play “what if” games with your hard-earned investment capital. Headlines come and go. Patience wins.

Spring cleaning may not be fun, and some people find estate planning to be a similar task. But it’s essential to have your affairs in order. Has it been more than 10 years since your wills and trusts have been updated? Do you list a trust as a beneficiary of an IRA? Do you know why? If we haven’t reviewed your estate plan with you recently, please call us. We are not attorneys, but we help clients understand the implications of certain beneficiary choices, and we suggest getting highly qualified legal advice for your estate plan.

Fall Portfolio Pruning

Seasonal weakness in September/October doesn’t always happen, but we’re experiencing it now. Consider the following analogy: Normal and necessary to maintain a healthy yard. Think of it in three phases:

  1. Trimming a few branches here and there, pinching dead flowers, no big deal, right? That’s akin to stocks pulling back by around 5%.
  2. The newly trimmed hedge, now 6 inches shorter, is bare on top, and will need a few weeks to grow back leaves at the top to make it look nice again. That’s more like a 10-15% correction. Doesn’t look good at first, and needs some time to grow back.
  3. And then there are the roses. Ugly stumps by end of November…only to re-bloom by February (gotta love Southern California!). Or the large trees that need annual branch trimming. Like a bear market, down 20% or more, and will certainly need more time, maybe several months to recover. Each with varying degrees of yard care, all normal and prudent.

Same with your portfolios and the markets.  How low will this correction go? Dunno. At their recent lows, the major indices were 11–15% below their fall peaks. Definitely worse than weekly yard maintenance, yet clearly in correction levels (-10% in most indices). We are still not anticipating a bear market, or winter rose bush pruning, if you will, in the S&P 500 or Nasdaq indexes, and are monitoring carefully.

Contact us with any questions at 1-888-969-7500, [email protected] or via this form