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The only thing we have to fear is fear itself

March 1, 2020
by Tommy Williams

Frankly, there were a few things that I thought would dominate the news cycle leaving little room for the coronavirus.  The Kobe Bryant memorial service, Bernie Sanders shocking surge in the polls for the Democratic presidential nominee slot, the Harvey Weinstein guilty verdict, and the inverted yield curve – I just wasn’t sure there would be enough airtime to talk about the spreading of the coronavirus.  However, when our stock markets face the biggest single one day drop in history and the biggest weekly loss since 2008, the matter elbows its way into the global news. A headline here and a headline there – you’re going to see some activity in the market. It’s even an opportunity for a polarized government to take shots at one another in an election year. Something for everybody!

The coronavirus appears to have inspired two distinct schools of thought among investors. Some investors currently favor opportunities that are considered lower risk, like Treasury bonds and gold, because they’re concerned about the potential impact of the virus on the global economy. Others are piling into higher risk assets, like stocks, that could benefit if central banks (like the United States Federal Reserve) take steps to stimulate economic growth, reported Randall Forsyth of Barron’s.

Currently, the Federal Reserve (Fed) is holding interest rates steady. The minutes of the January Federal Open Market Committee meeting indicated the Fed, “…generally saw the distribution of risks to the outlook for economic activity as somewhat more favorable than at the previous meeting,” reported Lindsay Dunsmuir of Reuters.

Last week, Fed Chair Jerome Powell said it was too soon to know whether the economic effects of the coronavirus on the U.S. economy would warrant a change in monetary policy. And while the news is all gloom and doom and the market reaction this week would have one thinking that the world is coming to an end, it’s important to keep in mind that the majority of coronavirus cases/fatalities remain within China. In China the virus has already hit a peak and the government is working to re-open factories and restart its domestic economy. They’ve even reopened all of the Starbucks in China! It is reported that the risk to average Americans is low, but the emotional reaction will likely give us the opportunity to strap ourselves in for more market volatility – and serve as a reminder that these things pass, and the economic fundamentals were sound before it started. When uncertainty subsides and economic activity resumes, we will likely see a positive market reaction.

During periods of uncertainty, like this one, the benefits of holding well-allocated, well-diversified portfolios become clear:

  • By holding asset classes (e.g., stocks, bonds, and other asset types) that respond differently to the same market conditions, investors protect themselves from the poor performance of a single type of asset. 
  • By diversifying holdings within asset classes (e.g., investing in different parts of the world, investing in different industries), investors protect themselves against the poor performance of a single investment.
  • At our firm we don’t have a crystal ball. But we do have Rick Wedell as the Chief Investment Officer in our group. Rick graduated magna cum laude from Harvard in Economics and Applied Mathematics. Next he graduated top of his class in the Stanford MBA program. He then spent 12 years in the institutional big leagues in Boston at Bain Capital. For the past several years we’ve been blessed to have him guide us through difficult times. It is also helpful to have cutting edge technology to provide a deep dive into historical comparisons of extraordinary events. We have found all of the above to be helpful.

Regardless of who is providing the guidance and what sophisticated tools they are using it is always a good idea to choose a well allocated and diversified portfolio that aligns with your goals, objectives and risk tolerance. That is how you find peace of mind during volatile times. Once again, I’m reminded of Franklin D. Roosevelt’s famous line “The only thing we have to fear is fear itself.” In fact, this may well be like New Year’s Day at Dillard’s when the crowds pack in for huge bargains! When they open the doors, please don’t get trampled in the stampede.

The 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 investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing involves risk including loss of principal. This material was prepared in part by Carson Group Coaching.

Visit us at Tommy Williams is a CERTIFIED FINANCIAL PLANNER™ Professional with Williams Financial Advisors, LLC. Securities offered through Private Client Services, Member FINRA/SIPC. Advisory Services offered through RFG Advisory, a Registered Investment Advisor.  Williams Financial Advisors, LLC, RFG Advisory and Carson Group Coaching are separate entities from Private Client Services. Branch office is located at 6425 Youree Drive, Suite 180, Shreveport, LA 71105