For families contemplating retirement, the prospect of moving on to a new stage of life may feel even more uncertain than ever in light of the pressures and uncertainties brought on by the coronavirus. As advisors, we’ve come across two very common questions over the last few months from soon-to-be retirees:
One question that seems to be popping a lot is “Why aren’t stocks down more?” After all, we’re in the midst of what I hope will be the worst economic calamity of this generation and equity losses are only moderate as we sit here today.
It’s honestly pretty weird to have a market crash that has such a simple explanation. An uncontained viral outbreak is endangering public health and disrupting economic activity. That’s the whole breakdown. It’s one sentence.
It would take me 5,000 words to explain the financial crisis from last decade and, even then, you’d have a list of follow-up questions. The ability to succinctly and confidently answer the question “why did markets go down?” is bizarre.
Speaking strictly financially here: I’ve heard a lot of suggestion that this time it’s different. Here’s the real inside information: It’s always different.
Here are several This Time It’s Diffferent™ events that have led to bear markets in domestic equities in the past: Unfettered lending, terrorism, the birth of the internet, an oil crisis, a single day in 1987, war, an extended period of high inflation.
In each case, markets flailed with uncertainty as participants grappled with how to handle events that generated a high degree of uncertainty and worry. What ended up not being different is that markets recovered from each of these This Time It’s Different™ events.
I wanted to follow up on our post from last week that aimed to put the market impact of Coronavirus in perspective. In that post, I talked about how markets and investors have reacted to different recent health crises in the past.
Since then, I’ve come across a few resources that I think help put all the chaos from the last two weeks into perspective.
You may have already heard, but Coronavirus is sweeping the globe. As of Monday, according to the World Health Organization, there have been just under 80,000 confirmed cases of COVID-19 (approximately 77,000 of which are in China) and around 2,500 deaths attributed to the virus.
Airlines are canceling flights, the US is issuing travel advisories, and there’s even talk of calling off the Summer Olympics, set to take place in Japan in a few months. It is certainly a scary time to have access to up-to-the-minute news.
A New Year (a new decade) is an opportunity to get things in order and make improvements. Every article published this week and last is a list of things to do to start the new year off right. Personally, I’ve already read more than I can count, so, I’ll keep this brief. Two financial and two non-financial to-do’s for the new year:
The ‘Setting Every Community Up for Retirement Enhancement (SECURE)’ Act was signed into law in December as a part of the latest government spending bill. As a whole, the SECURE Act is a grab bag of various incentives and obligations for individuals and companies providing retirement plans.
The overall intent is to make it easier for families to save for retirement with several changes affecting the availability of and incentives for saving in retirement accounts.
In our world, a great deal of time is spent having discussions over the proper ways to perform estate planning tasks. This can be as simple as establishing wills and beneficiary designations or can involve a network of specialized trusts to ensure your wishes are carried out after you pass away.
Fee transparency has been a hot-button issue in the financial advising community over the past few years.
High profile stories of unsavory compensation practices have appeared in national publications heralding extra scrutiny into just how financial advisors can be paid.
Starting in December 2016, the U.S. Federal Reserve (the Fed) had been gradually increasing interest rates (specifically, the federal funds rate), until it reached a high two years later in December last year of 2.25–2.50%. As of last month, that changed: The Fed lowered interest rates by 0.25%.
This move was the first rate decrease since the thick of the 2008 recession. While the move was expected, it nevertheless received wide media coverage accompanied by the usual outpour of opinions on whether it will be a blessing or curse to financial markets. As of today, the President is urging the Fed to further decrease rates to zero “or less”.
Albert Einstein was said to have described compound interest as “the eighth wonder of the world” and that it is “the most powerful force in the universe”. High praise from one of history’s greatest scientists about an elementary-level concept of finance.
I mean, he’s right. Warren Buffet, widely regarded as one of the greatest investors ever, openly admits that most of his wealth is attributable to simple compounding.