The fixed income and equity markets continue to change very quickly, and in unexpected ways. Governments across the globe have sent very strong messages that they will take whatever steps are needed to support economies through this difficult time. Having a solidly structured portfolio of high-quality investments, married with proper financial planning, is key to navigating uncertainty. Now is the time to avoid making mistakes. I recently spoke with a client who noted that now, everyone is talking about the importance of having high-quality stocks and bonds, specifically those from entities with low debt and good revenue growth. It is with intention that we have consistently recommended securities with solid financials to be prepared for difficult times in advance. We have never recommended high-flying investments, as they struggle to survive difficult times. It is almost impossible to predict the end of event-driven market drops that have started when economies have been very strong, but I thought it would be helpful to share some key points about what we are doing:
1. Today represents, in my opinion, one of the best opportunities in history to buy stocks. If it is suitable for your situation and you are able, please add extra cash to your portfolio for us to invest.
2. Proper diversification and asset allocation continue to be key – these lower levels represent great opportunities to buy stocks, but trying to predict daily market movements can hurt returns since the biggest down days occur right next to the biggest up days.
3. People are living longer, yet the supply of available shares in publicly traded companies continues to shrink – I believe stocks are still the single best way to transfer earned income into wealth.
4. The current yield on the S&P 500 is around 2 1/2% while the 10 year U.S. Treasury is at 0.6%, so stocks continue to be the best way to generate income from your savings.
5. Finding yield in fixed income investments has been incredibly challenging because supply is very low, but we have been able to fund some decent rates on very short term CD’s. Short-term high quality tax-free municipal bonds have been very difficult to find. There is an abundant supply of short-term fixed income with poor credit ratings at very high yields as companies scramble to raise cash. Yesterday I saw an offer for 8.2% for 1 year – in my opinion, these types of junk bonds carry way too much risk in any type of environment, especially today.
Now is the time to be making the very best financial decisions that are based on tried and true principles. The current quarter will be very important as we assess how changes in earnings will affect the overall financial health of companies. Over the past several years, we have worked very hard to be prepared for this exact type of environment. Difficult times ultimately lead to meaningful, positive changes. No doubt the current situation will catalyze dramatic improvements in how services such as healthcare and education are delivered, and will also make all of us hone in a little more closely on the important things in life. We thank each and every one of you for your ongoing trust, and hope that everyone stays safe. Please keep your questions coming – we are working very hard to help everyone during this challenging time.
Thank you very much,