The current stock market correction has been swift and steep, with the S&P 500 Index shedding 15% from its closing high on February 19th through early trading on February 28th. The drop-in stock prices have been accompanied by a flight to safety, driving government bond yields below 1.2% for 10-year Treasuries, and driving up volatility as measured by the CBOE Volatility Index (VIX), which has spiked to levels seen 7 times in the past 20 years. That being said, the current market drops, and fears of an unpredictable global event are far from unique, or in other words…we have been down similar paths many times before.

Concerns over the COVID-19 virus have been the primary driver of this downturn, with fears that global growth, infrastructure and profitability will be substantially impaired by the virus. While the course of the COVID-19 virus and economic impact is unknown, we do have recommendations to how our clients should approach the current market disruption, based on their relative stages in their investing lifecycles.

Nearly all Summit clients can be classified in one of the following investing lifecycles: 1. those who are saving and building their portfolios, 2. those who are no longer saving, but have not begun taking distributions, and 3. those who are using their portfolio to meet living expenses in retirement.

1. For those saving and building their portfolio, market downturns present opportunities to invest at lower price points and the chance to rebalance among asset classes based on relative changes. It may not be pleasant to see portfolio values lower than they had been in previous reporting cycles, but the goal of the portfolio is to build wealth, not to have an uninterrupted smooth ride. Volatility can be your friend if you remain patient and disciplined. Keep to your savings patterns and do not alter your Investment Policy Statement targets.
2. For those who are no longer saving, but have not begun taking distribution, this isn’t the same kind of opportunity that it is for “the savers” – but it is a reminder of the importance of having built your portfolio with an appropriate amount of low volatility assets, like core bonds, which allow you to have the remainder of your portfolio in more risky assets such as equities and diversifiers. While volatility is not your friend, patience and discipline in following your investment policy statement, and taking advantage of rebalancing opportunities are the appropriate ways to handle downturns.
3. For those who are using their portfolio to meet living expenses in retirement, downturns can be scary, and they don’t feel like an opportunity as they are for “the savers.” However, your Investment Policy Statement has been designed for your personal circumstances. Your lower risk assets, such as core bonds, have been established at a level which is designed to allow you to meet a certain number of years of anticipated expenses without having to sell stocks during a market downturn. Viewing this as a weather analogy, we know storms will happen, but we don’t know when and how severe they may become or how quickly they may strike, so we help build your portfolio in a way that you have secure shelter, adequate food, access to clean water and a generator before the storm hits. Riding out the storm may be unpleasant (and scary at times), but if you stay disciplined and follow the instructions you had agreed to before the storm, you will emerge safely and in better condition that those who were not prepared.

All of our clients have unique needs, and we encourage them to reach out to their Summit team members for individual help and counsel.