The fears surrounding the COVID-19 virus continue to spread and the extent of its impact on the global economy is uncertain. Certain industries and sectors will suffer more due to cancellations, travel restrictions or outright travel bans. Add in the severe drop in oil prices due to production disagreements between Saudi Arabia and Russia, the collapse in bond yields due to a flight to safety in Treasury Bonds and the result is a declining market that has officially entered correction territory.
We believe in having a plan and a strategy to help deal with fear and uncertainty rather than just reacting emotionally to the news.
So, what is our strategy to deal with this market volatility?
Let’s start with the clients that are taking withdrawals from their investment accounts, whether it’s a Required Minimum Distribution (RMD) from your IRA or regular withdrawals from your non-retirement accounts. For those clients, our strategy involves having enough portfolio income and shorter-term bonds to cover those withdrawals for at least a couple of years, if not longer in many cases. This means we do not have to make any changes or sell shares that are temporarily down in value to provide for withdrawals. This allows us to stay the course with our investment strategy and not emotionally react to the news or events beyond our control.
For clients that are not currently taking withdrawals from their investment accounts, our strategy involves reinvesting and compounding the portfolio income and buying additional shares and dividends at lower prices. This allows us to take advantage of this market volatility by accumulating a greater number of shares and dividends at lower share prices. Even though it doesn’t feel good, this type of compounding can potentially increase future retirement income.
As most of you know, the core of our investment strategy is to own quality assets that pay income and have the potential to increase that income in the future. An important point to remember is this income (even though not guaranteed) is not dependent on share prices or account values. Rather, it is dependent on company operations and fundamentals…revenues, profits, free-cash flow, etc.
Will many companies’ profits be temporarily impacted by the virus? Definitely. Will some over-leveraged or highly indebted companies not survive? Most likely. Is the world coming to an end? We don’t believe so.
We will persevere and get through this. The global economy will survive and bounce back. Quality companies will adapt and pull through.
It’s a scary time out there with all the media coverage and fearful headlines. As we mentioned in our last update, try to focus on what you can control and avoid reacting emotionally to events that are beyond your control.
Please know that we are here and available for your concerns and questions regarding your specific situation.
Benedict Financial Advisors, Inc.
Philip C Benedict, CFP®
Travis M James, CFP®
Mark A Beaver, CFP®
Ashley A Thompson, CFP®
Fredda B Schwartz
Benedict Financial Advisors, Inc., a registered investment advisor, publishes The Benedict Brief. All opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, please consult your financial advisor. Remember that international investing involves additional risk, such as currency fluctuation and political instability. Also, any time an index is mentioned, please remember that it is an unmanaged index that cannot be invested into directly. And, of course, past performance, in the investment world, is no guarantee of future results. Stock investing involves risk including loss of principle. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values and yields will decline as interest rates rise and bonds are subject to availability and change in price. No strategy assures success or protects against loss. The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.
The primary author of this issue of The Benedict Brief is Mark A Beaver, CFP®. Philip C Benedict, CFP®, Travis M James, CFP®, and Ashley A Thompson, CFP® provide technical assistance. Fredda B Schwartz and Jackie Thompson handle the layout and editing of the newsletter.
Investment advice offered through Benedict Financial Advisors, Inc., a registered investment advisor.