The stock market just had its best week since 1974, but we’re still down about 18% from all-time highs set in February. The news is in our pockets and we’re constantly seeing headlines like “Buy the Dip,” “Cash Out Your 401(k) Before The Market Goes To Zero,” and I've even been asked twice this week if it would be wise to buy cruise ship stocks. That’s a first.
The most common issues I’ve been addressing with clients recently are: What should I do with my 401(k) at work? Is now the time to buy stocks? How does the economy look for 2020? And What resources are available for Small Business Owners?
What should I do with my 401(k)?
On January 3, Peter Mallouk, President of Creative Planning, one of the largest Investment Advisory firms in the country, wrote a blog called "To Win The Game, You Have To Stay In the Game."1 He highlighted the soaring returns that 2019 brought despite projections of a major setback by many market pundits. The point was not to say that he knew what was going to happen. Rather, he said "the key, as we [Creative Planning] have advocated since our inception, is to get invested in solid investments and stay invested."1
Just as his advice applied during all-time market highs, I want to reiterate how important it is now during this downturn. If you sell stocks now, and move to cash or a more conservative position, you are selling during an historic downturn and locking in your losses. If you sell, you are guaranteeing that you will not participate in the recovery. And that is what people mean when they tell you that they lost everything in an economic downturn. It means they got out. Do not get out.
So, what should you do with your 401(k)? The right answer is probably to do nothing. Continue to contribute just as you were (for more information, do a quick google search on how effective dollar-cost-averaging can be). If you are fortunate enough to be in a position to increase your contribution rate, then you should. But that was true before the downturn, just as it is now. We do not know what the market holds for us moving forward; I am an optimist, not a fortune teller. But we do know that the more you save and invest, the more the power of compounding will work in your favor over time, and that is just as true today as it was when Peter Mallouk wrote his article two months ago.
Is now the time to buy stocks?
Yes.... now, here's the caveat... if it fits within your financial plan. This rules out those that do not have an adequate 4-6 month emergency fund, those with high-interest debt or too much debt, and those saving or needing money in the short-term.
If you are lucky or prepared enough to invest more during this time, again, you are going to want to continue to invest according to your financial plan. Contribute to your existing portfolio that was built according to your personal risk tolerance and investment style. For most of my clients, this means that they are contributing more to their Vanguard index funds, be those ETF's or Mutual funds.
Now, getting to the fun part, if you are an especially risk-tolerant investor and hold individual stocks in your portfolio, you are probably wondering which stocks you should buy. The market changes every day, so I am not going to publish a post with stock recommendations, but I would like to direct you to Warren Buffett's annual letter to Berkshire Hathaway Shareholders so you can learn HOW to look for a stock.2 Scroll down to the bottom of Page 3 of his letter and read the section titled "The Power of Retained Earnings" where Buffett gives you the key to his investment success; invest in companies that generate, retain, and reinvest earnings.
What is the outlook for the economy?
Our economy is in trouble right now. Businesses are shut down, consumers are not spending, unemployment is on an historic rise, and we do not yet know when things will go back to normal. Our government and The Fed are doing everything they can to combat the effects of this necessary economic shutdown with the recent passage of the $2 Trillion CARES Act. See below.
In his recent letter to shareholders, Jamie Dimon wrote the following3:
Clearly, some clients may be much more vulnerable than others - for example, transportation companies, hospitality enterprises, hospitals, utilities and, in particular, small businesses that do not have enough capital to withstand sudden and sustained downturns in income. JPMorgan Chase Institute Research reveals that 50% of small businesses have less than 15 cash buffer days...
To answer the above question more directly, the short-term outlook of the economy is currently not good and long-term effects are entirely unknown. We do not yet know when the economy will reopen and how this will change consumer behavior, employment, and corporate actions. Signs are improving and the curve is flattening, but the best thing that we can do for the economy is to heed the directions of our scientists and health organizations and honor our heroes on the front lines by supporting them however we can.
What resources are available for small business owners?
The Visalia Chamber of Commerce has an excellent page on COVID-19 updates for business owners local to Visalia. They are also offering an emergency membership with delayed membership dues. If you are local, I suggest starting here.
Thank you for reading and please feel free to send any questions to Schad@SequoiaInvesting.com
- Schad TenBroeck, Sequoia Financial LLC
Risk Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.
This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Schad TenBroeck is an Investment Advisor Representative of Sequoia Financial, LLC. Investment Advisory Services are offered through Sequoia Financial, LLC, a California Registered Investment Advisor. Insurance services are offered through TenBroeck Insurance Services. Sequoia Financial, LLC and TenBroeck Insurance Services are affiliated.