COVID-19: Client Update

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March 13, 2020

Dear Valued Investor:

Fears over the spread of COVID-19 (coronavirus) have gripped the country and sent stocks in the US and around the world into bear markets. Thursday’s nearly 10% decline in the S&P 500 Index was one of its worst days in history and the largest one-day percent decline since the 1987 crash. What makes pandemics so much more personal than other crises is how they are felt by everyone, as nearly all major events have been cancelled, major league sports seasons have been postponed, travel restrictions have been put in place, many employees are being sent home to work remotely, planes are empty, and many shoppers are staying away from stores and restaurants.

These significant efforts to contain the outbreak are also the same actions that will have an impact on the US economy.  Just a few short weeks ago, the economic environment was healthy and improving in the US and around the world. Now, as we head into the second quarter, the presence of an economic slowdown is a reality and the odds of a recession are increasing.  That said, in our view markets have largely, if not overly, priced in these recessionary outcomes.

We think some context here is important.  Fear, as a core human emotion, is magnified when situations arise unexpectedly and quickly. In other words, it has been the speed and unexpectedness of recent events that has driven the outsized reaction from the markets. In fact, the S&P 500 Index needed only 16 days to go from a new all-time high to a bear market (measured as 20% off the recent highs), an all-time record, topping the previous record of 28 days in 1929. Many investors have never seen jarring moves like this before.

One potential positive from stocks falling into a bear market this quickly is historically they have also tended to stage more powerful rallies off the lows. For the bear markets since World War II that saw 20% or more declines within 270 days, the S&P 500 tended to bottom more quickly and recorded shallower declines. On average, these quicker bears averaged a 26% loss, compared with the average bear market decline of 33%. Given this was the quickest bear market ever, it is reasonable to think a strong reversal might be possible.

The great news is that the US economy was very healthy before this three-week stretch of steep market declines, with employment strong and the unemployment rate near 50-year lows, solid job and wage gains, corporate profits poised to accelerate, and company balance sheets in excellent shape. This bodes well for a faster recovery on the other side. Like someone who gets sick, the healthier you are coming into it, the faster tend to recover.

The investor playbook is always to follow your investment plan. The only thing worse than not having a plan is abandoning the one you have. The stock market has already suffered declines similar to those associated with mild recessions. That doesn’t mean stocks can’t go lower. It just means that the opportunity for long-term investors is getting more attractive. While markets continue to face a crisis of uncertainty, we still have unwavering confidence in the long-term fundamentals and prospects for the US economy and corporate America.

Please stay healthy and contact me if you have any questions or concerns.

Sincerely,

Wayne Rigney

 

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Important Information

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

All data is provided as of March 13, 2020.

This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Tracking # 1-965300 (Exp. 02/21)

Debt Should Retire When You Do

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These days, having a credit card is practically a necessity, even when you are retired. It’s hard to do things like buy airline tickets, rent a car, or place an order online without one. And, while monitoring your credit card use is important anytime, making sure you avoid credit card mistakes that could affect your finances is essential once you retire.

It’s a Credit Card, Not a Paycheck

Although it sometimes may be difficult to live on a fixed amount, using credit to supplement your income will only make it harder to live within your means. Avoid using your card to pay for groceries or other necessities unless you can pay the balance in full when the bill comes due. If you can’t pay the balance and continue to charge purchases, you risk having a larger credit card bill than you’re comfortably able to pay each month. And you could be incurring hefty finance charges on the unpaid balance, making it even harder to reduce your debt.

Pay Attention to Features

Think about how you intend to use the card. Cards that earn travel or other rewards may be appropriate if you’re disciplined and pay off your card balance each month. But make sure any fees for a rewards card don’t outweigh the benefits. If there’s a strong possibility that you’ll carry a balance on a high-rate card, forget the rewards and look for a card with a low interest rate.

Nurture Your Credit Score

You’ll get the best deals on credit cards if you have a high credit score. Don’t hurt your score by paying bills late or getting into too much debt.

If You Do Have Debt

If you still have credit card debt as you begin retirement, make sure you have a plan for paying it off. Once it’s gone, using credit responsibly will help keep your finances on track.

Required Attribution
Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content. 
AR Tracking Number: 1-909497 Expiration Date: 11/2020 

Common Investment Pitfalls and How to Avoid Them

Only about 17% of American workers say they are “very confident” they will have enough money to live comfortably throughout retirement. (1) To help reduce such uncertainty in your life, consider these five common investment pitfalls — and how you might avoid them.

Mistake #1: Waiting to Maximize Your Contributions The sooner you start contributing the maximum amount allowed by your employer-sponsored retirement plan, the better your chances for building a significant savings cushion. By starting early, you allow more time for your contributions — and potential earnings — to compound, or build upon themselves, on a tax-deferred basis.

Mistake #2: Ignoring Specific Financial Goals It is difficult to create an effective investment plan without first targeting a specific dollar amount and recognizing how much time you have to pursue that goal. To enjoy the same quality of life in retirement that you have become accustomed to during your prime earning years, you may need the equivalent of up to 80% of your final working year’s salary for each year of retirement.

Mistake #3: Fearing Stock Volatility It is true that stock investments face a greater risk of short-term price swings than fixed-income investments. However, stocks have historically produced stronger earnings over the long term.(2) In general, the longer your investment time horizon, the more you might consider adding stock funds to your portfolio.

Mistake #4: Timing the Market Some investors try to base investment decisions on daily price swings. But unless you have a crystal ball, “timing the market” could be very risky. A better idea might be to buy and hold investments for several years.

Mistake #5: Failing to Diversify Investing in just one fund or asset class could subject your investment portfolio to unnecessary risk. Spreading your money over a well-chosen mix of investments may help reduce the potential for loss during periods of market volatility. Diversification may offset losses in any one investment or asset category by taking advantage of possible gains elsewhere. (3) Now that you are aware of these five common investment errors, consider yourself lucky: You are ready to potentially benefit from other people’s experiences — without making the same mistakes.

 

 

Source/Disclaimer:
(1)Source: Employee Benefit Research Institute, “The 2018 Retirement Confidence Survey,” March 2018.
(2) Source: DST Stsyems, Inc. Stocks are represented by total returns from Standard & Poor’s Composite Index of 500 Stocks, an unmanaged index generally considered representative of the U.S. stock market. Fixed-income investments are represented by annual total returns of long-term (10+ years) Treasury bonds. Indexes do not take into account the fees and expenses associated with investing, and individuals cannot invest in any index. Past performance is no guarantee of future results. With any investment, it is possible to lose money.
(3) Diversification does not assure a profit or protect against a loss in any market.
Required Attribution:
Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content. 
AR Tracking Number: 1-909500 Expiration Date: 11/2020