Coronavirus: Update 2

Blog post #433

Since we first wrote about the coronavirus two weeks ago, the virus has spread to more countries including the US, and global stock markets have declined significantly this week.

However, even with the declines of the past week, clients should remember that your fixed income allocations have increased in value (as interest rates have declined) and provide a strong foundation of stability for your portfolio and any near term cash needs.

Talk to us if you have concerns: We want to emphasize that if you have specific financial concerns or want to discuss the impact of this situation to your portfolio or financial future, please contact us.

While we stress a long-term approach to investing, if you have short-term concerns, now is the time to talk to us about that. That is what we are here for.

Keeping things in perspective: please remember that point drops in stock market indices can sound much worse than the percentage changes. As we wrote about a few weeks ago, a 1,000 point decline in the Dow Jones Industrial Average (DJIA) may sound worse than a 3-4% decline.

The future? We cannot make any predictions or forecasts of what the future will hold or what the full impact of the coronavirus will be. As global health officials are not able to do this, we certainly cannot anticipate what will occur in the coming weeks or months.

There are a wide range of possible impacts and outcomes. It is very possible that the short term (the next 3-6 months) financial impact to companies and stocks may be far greater than the actual health issues or number of deaths caused by the coronavirus.

It is possible that the the spread of the coronavirus to the US and other parts of the world will cause much greater disruptions to supply chains and every day lives and economic activity than was generally anticipated only a week or two ago. If this were to be the case, then it is possible that US and global stock markets may decline much further in the near term. There is no way to know this.

However, we think this issue is quite different than what occurred in 2008-2009, as that was a material economic decline that took years to recover from. If government and health officials act efficiently and pharmaceutical companies are able to promptly develop vaccines and other treatments, the coronavirus should not be a long lasting disruption to consumers, countries and companies…..and stock markets would likely bounce back before the coronavirus matter is fully resolved.

We do not recommend making any specific investment changes due to the coronavirus outbreak. As we have discussed in the past, to try to “trade” or “time the market” based on a specific event, you must be correct in your timing…twice. As markets react to news and information so quickly, as well as rumors, this is not likely to be a successful strategy.

While it is very possible that global stock markets may continue to incur losses and be much more volatile due to the coronavirus in the short term, we feel a strategy of adhering to your long-term investment plan and asset allocation makes the most sense.

Stock prices are most directly impacted by current and future earnings. Companies based in the US and globally will be impacted, but to varying degrees. Most companies thus far have not determined what the financial impact will be and very few companies have released specific statements or changed their future earnings guidance. We presume that many more companies will be announcing reduced short-term earnings guidance in the coming weeks or months, which is what prompted part of the market sell-offs this week.

We want our clients to know that they have very little direct exposure to companies that are actually based in China. For example, if you have a 60/40% stock/fixed income allocation, Chinese-based companies account for approximately 2-3% of the globally diversified portfolio that we recommend.

However, it is important to note that the impact of the coronavirus now appears to be impacting globally beyond Chinese companies or those that have historically relied upon Chinese consumers, Chinese tourism and spending for a significant part of their revenue and profits. The virus may lead to consumer and supply chain disruption issues on a global basis.

There may be further short-term declines, which could be significant, and stock market swings based on health reports, either positive or negative, due to the coronavirus. Volatility may continue to increase if the coronavirus outbreak persists in China, continues to spread in a more significant manner to other parts of the world, and if the real or perceived impact affects every day lives in the US.

Interest rates have continued to drop in the US, due to the coronavirus. This has created another opportunity for mortgage refinancing, or low rates if you are looking to purchase a house, as mortgage rates for 15 and 30 years are extremely low.

The price of oil and some other commodities have dropped significantly due to the reduced demand, because of the major shutdowns occurring in China and reduced economic activity elsewhere.

We again encourage you to talk to us if you have concerns about these current conditions.

If you know of family or friends who could benefit from this type of advice and guidance, please share this post with them, and let them know we are available to help them as well.

Being prepared

Blog post #432

We strive to design a financial plan for you.

We recommend and build a portfolio for you, that will help you reach your financial goals.

But sometimes the unexpected happens.

A crisis. A health emergency. A death in your family.

Are you and your loved ones prepared?

We are not talking about whether you have life insurance…we are focusing on the more mundane, but critically important ability to handle basic financial tasks, in our high-tech society.

Are you and your family adequately prepared?

If something were to happen to your parent or spouse, does someone know how to access bank accounts and pay bills?

Do you know how to log into all of their devices, such as their cell phone, tablet (iPad), and/or desktop or laptop computer?

As we talk to clients, there are a significant number of families where one person handles all the financial matters….and the other person or children would not know how to handle these important tasks, or does not know the logins and passwords needed to get access or pay bills.

We want to stress to you the importance of talking to your spouse or other family members (children or even grandchildren) about these things so they are informed and prepared, in advance.

We know that many of you are resistant to using password manager programs, even though we have strongly recommended these many times in the past. The issue we are addressing here goes far beyond using a program.

It’s about information…..whether you or others know how to do things, and do multiple people that are close to you have the knowledge, ability and data (logins and passwords) to handle important financial tasks, if you or another family member are not capable of doing these things?

Do a practice drill. Spend 15 minutes with your parents or loved ones. Talk about this. It will be beneficial.

Can your close family members access your computer or cell phone, your primary bank account, pay some bills and view your credit card accounts?

Do you each have credit cards in your own name? Every couple should have at least one major credit card that is not a joint credit card account.

Just the opposite, every couple should have at least one bank account that is joint, or have an individual bank account that can be accessed in an emergency with at least $10,000 in it.

We plan for you. We help to build your wealth.

But you must take responsibility to do these things, for you and your loved ones.

The 15-30 minutes that you spend now to do this could save you a lot of problems one day in the future.

Talk to us about your family. We want to help you, your children, (and even your grandchildren), with any financial matter that is important to you and your family.

If you know of family or friends who could benefit from this type of advice and guidance, please share this post with them, and let them know we are available to help them as well.

Investing implications of Coronavirus outbreak

Blog post #431

As of now, the coronavirus has not had a material impact on the investments of our clients.

US and global stock markets have generally been quite resilient and have held up well so far, despite the ongoing health issues, which have led to various consequences in China and are impacting other parts of the world.

We cannot make any predictions or forecasts of what the future will hold or what the full impact of the coronavirus will be. As global health officials are not able to do this, we certainly cannot anticipate what will occur in the coming weeks or months.

We do not recommend making any specific investment changes due to the coronavirus outbreak. As we have discussed in the past, to try to “trade” or “time the market” based on a specific event, you must be correct in your timing…twice. As markets react to news and information so quickly, as well as rumors, this is not likely to be a successful strategy.

While it is very possible that global stock markets may incur losses or more volatility due to the coronavirus, we feel a strategy of adhering to your long-term investment plan and asset allocation makes the most sense.

Companies based in the US and globally will be impacted, but to varying degrees. Companies are not able to anticipate or determine what the impact will be, or very few companies have released specific statements or changed their earnings guidance. It is likely that some firms, and their stocks, could be affected, such as companies that have major businesses in China (such as Starbucks and luxury retailers), companies that rely on travel to or from China (such as certain airlines, hotels, luxury retailers and the gaming industry), or companies based in China or that rely on China for the manufacturing and supply of products (Apple, for example).

We want our clients to know that they have very little direct exposure to companies that are actually based in China. For example, if you have a 60/40% stock/fixed income allocation, Chinese-based companies account for approximately 2-3% of the globally diversified portfolio that we recommend.

However, it is important to note that the impact of the coronavirus may globally extend beyond companies that have historically relied upon Chinese consumers, Chinese tourism and spending for a significant part of their revenue and profits. The virus may lead to issues for companies on a global basis that rely on Chinese companies as part of their supply chain. These companies would be held throughout a typical portfolio and the impact cannot be determined.

There may be short-term impacts and stock market swings based on health reports, either positive or negative, due to the coronavirus. Volatility may increase if the coronavirus outbreak persists in China or spreads in a more significant manner to other parts of the world, or the US. The stocks of individual or groups of companies may begin to be impacted more as they are better able to assess and report changes in revenue and future earnings expectations due to the impact of coronavirus on their business.

Interest rates have dropped in the US, due to the coronavirus. This has created another opportunity for mortgage refinancing, or low rates if you are looking to purchase a house, as mortgage rates for 15 and 30 years are extremely low. The price of oil and some other commodities have dropped significantly due to the reduced demand, because of the major shutdowns occurring in China.

We want to emphasize that if you have specific financial concerns or want to discuss the impact of this situation to your portfolio or financial future, please contact us.

While we stress a long-term approach to investing, if you have short term concerns, now is the time to talk to us about that. That is what we are here for.

Are you improving your habits?

Blog post #430

For most of us, wealth or a successful career does not happen overnight.

Growing your wealth or accomplishing almost anything, such as improving your health or building a business, takes time. Success in these types of endeavors rarely happens quickly. Massive success does not always require massive action. In reality, most successes are usually the result of changes that seem small and incremental, which accumulate over months and years and then compound into remarkable results…..if you’re willing to stick with good habits for years.

In the book Atomic Habits by James Clear, he explains how very small changes in your habits and routines can have a significant long-term positive impact on your life. Although I have only started the book, I highly recommend it already.

Clear explains his title….” atomic” means an extremely small amount of a thing which is the source of immense energy or power. “Habit” is a routine or practice performed regularly.

Improving by 1% per day or per year does not seem like much, and may not even be noticeable at the time, but over the long run, can be very meaningful.

Likewise, small declines or mistakes here and there hinder progress and can eventually lead to a problem. Think of your daily food decisions, fast food visits or poor financial decisions, such as if you tried to time the stock market and failed at it. Did you ever get out of the market and then miss a huge recovery before you got back in?

If you are working and trying to build your retirement, are you increasing your retirement plan contribution % every year, when you get a raise?

  • If you did that, you would be saving more every year, and still taking home more money.
  • If you increased your retirement contribution every year, say from 5%, to 6%, to 7% and continuing each year…..that would have a huge impact on your savings and wealth accumulation over 5-10-15 years.

When my three children were young, we saved a few hundred dollars per month for each of them for college. Along with the habit of saving gift money they received from relatives, such as grandparents, and sacrificing some trips to ensure that we continued to save, we were able to save enough for each of their college costs. The growth of these accounts did not happen overnight….it was the result of starting at birth and continuing to save for more than 15 years for each of them. Also, we were disciplined and stuck with the investments, regardless of the ups and downs of the stock market.

In his bookClear stresses that “habits are the compound interest of self-improvement. The same way that money multiplies through compound interest, the effects of your habits multiply as you repeat them. They seem to make little difference on any given day and yet the impact they deliver over the months and years can be enormous. It is only when looking back two, five, or perhaps 10 years later that the value of good habits and the cost of bad ones becomes strikingly apparent.” **

If you save money each month or regularly, you don’t become a millionaire overnight. If you go to the gym or workout a few days in a row, you are not suddenly in great shape. For most of us, we make a few changes, try to change our habits….but don’t see quick results, so we don’t make the change a permanent habit for the long term.

Clear empathizes over and over that success is the product of daily habits that you stick with, not a once in a lifetime transformation, such as one great stock pick or starting the latest fad diet for a few days or weeks. You should be more focused on your trajectory. Are you moving in the right direction? We can help you with your financial planning, financial habits and trajectory. A personal trainer can help you with your health trajectory.

  • Are you spending less than you are earning?
  • Are you saving regularly?
  • Are you exercising regularly, doing both aerobics and strength training?

Your outcomes (results) are a lagging measure of your habits (what you have done in the past for many years). Your net worth is a lagging measure of your financial habits (which we can help you with). Your weight is a lagging measure of your eating habits. Your clutter (and mine) is a lagging measure of your cleaning habits and organizational skills (and mine). You get what you repeat.

Clear introduces two concepts that I found very instructive late in the first chapter. He said we all go through a “Valley of Disappointment” when we adopt new habits. We start exercising and don’t see quick results. It is frustrating. So, we get disappointed and don’t stick with it long enough to see the compounding benefits. Most of us quit the new habit when we are in the Valley of Disappointment. We want to see the results and impact, but the key of the compounding process is that the most powerful outcomes and changes are delayed into the future. And this is part of the reason that so many new habits are started and not adhered to for the long term, let alone for weeks or months.

To see a meaningful difference, we must adhere to new habits and practices long enough to reach the breakthrough, or what he calls the “Plateau of Latent Potential.” When you are saving monthly for college or retirement, the account may not grow much month to month, but then you realize at some point, which may be years into the future, that your monthly or quarterly habit of savings is becoming real money. The account has grown to a significant level. The habit is/was worth sticking to!

While I didn’t know about the “Valley of Disappointment” or the “Plateau of Latent Potential” until this week, I experienced exactly these feelings over the past few months. I hurt my back, which also caused pain down one leg and behind my knees in mid-November. After seeing my internist and a physical medicine doctor, I began physical therapy in mid-December. He prescribed a series of exercises I was to do three times daily, which took 20-25 minutes each time, as well as go in for physical therapy visits 2-3 times per week.

I started the exercises and was very frustrated around Christmas and New Years. I was spending about 60-75 minutes per day doing the exercises, plus office visits….and was not feeling much improvement. In Clear’s terms, I was in the “Valley of Disappointment.”

Fortunately, I am disciplined. I wanted to feel better. I didn’t give up. I made these exercises a new habit. Three times a day, almost every day, regardless of whatever other activities and early morning meetings I had, I did these exercises and went to see the physical therapist as directed, 2-3 times per week. (If anyone needs a great PT recommendation in the Southfield, MI area, I will gladly provide you his name).

Then it happened. All of a sudden, I started to see real improvement. I hit the “Plateau of Latent Potential.” The daily exercises showed signs of paying off. My legs felt better. My back pain was progressively diminishing. That was even more motivating. So, I have continued doing all these new habits, the regular PT exercises and office visits, and the progress has continued.

And unexpectedly, I realized that I was also getting stronger, which was a great side benefit. This is another benefit of adhering to good habits. Sticking to good habits leads to continual improvement, which leads to self-improvement in other parts of your life.

For me and our firm, we have always been dedicated to self-improvement and continual learning. I have been a member of a study group for over 15 years that meets with other financial advisors from across the country a few times a year and have monthly peer telephone calls.

This dedication and habit of self-improvement had another benefit last week. I decided to begin reading Atomic Habits after a Q & A session I participated in last week in Austin, Texas, with the co-CEO of Dimensional Fund Advisors. I had heard of the book previously, but had not read it. Dave Butler, the co-CEO was asked about his habits, as a successful leader. He said he is a huge believer in the power of habits and that successful people develop small habits on a regular basis. And they are successful because they stick to them as long-term habits.

I have a habit of listening to others I respect, and Dave Butler is one of those people. When someone like that recommends a book, I usually go directly into my Amazon app and put the book into my cart. Habit. It then becomes an immediate reminder to consider reading that book. Another habit. Then I read a lot. Habit.

We want to help you develop and continue to have good financial habits.

If you spend less than you earn, you can save.

If you save and invest wisely over the long term, you can have financial success.

You can retire in a comfortable manner. You can travel if you choose. You can provide financial assistance to your children and grandchildren, as well as charitable causes.

A lifetime of good things can come from having good financial habits.

Talk to us about your family. We want to help you, your children, (and even your grandchildren), with any financial matter that is important to you and your family.

If you know of family or friends who could benefit from this type of advice and guidance, please share this post with them, and let them know we are available to help them as well.

** Source, Atomic Habits, James Clear, page 16 (italics added for emphasis)