COVID-19 poses a real threat, as have other past epidemics. Unfortunately, these types of events are not new, nor is the shorter term reaction within financial markets.

The US stock market, as of Feb. 27th, 2020 has declined approximately -12% since the highs of 2 weeks prior while US bond yields have declined to all-time lows (bond prices rose due to inverse relationship between bond yields and price).

Historically, stock markets have rebounded following similar past events. See the chart below (Source: Dow Jones market data)

Market declines always feel worse when in the moment. They can lead to feelings of fear or regret about not taking some action before an event, as though able to predict such declines. To be clear, we don’t know the depth or duration of this market decline. What we do know is that having a well created and intentional plan before the event occurs allows us to have a thoughtful approach to making decisions when in the moment.

For 25 years we have successfully utilized a client-specific bucketed approach to planning and investing. This, in our view, creates a necessary connection between planning decisions and investing decisions. What does this mean?

• For clients taking income from their portfolio, we have set aside 3 years’ worth of income needs in low risk, stable investments that are insulated from stock market declines. We are not forced to sell stocks in a down market to provide an income stream.

• The intermediate term segment of a portfolio is invested defensively by owning quality bonds, preferred securities, and high quality US dividend paying companies.

• The longer term parts of a portfolio are where the volatility of the past 2 weeks resides. This segmentation is intentional because time is very much on our side with 10+ year time horizons. This is also the segment where we have a greater ability to add to longer term growth investments during down markets like we are currently experiencing.

We have found this approach creates good discipline in both up and down markets. Although market volatility is elevated, our view continues to remain the same. Follow the plan that was intentionally developed, avoid making impulsive decisions, and take advantage of market opportunities.

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