Investor Column | Feeling, and managing, the risks brought by the coronavirus

This is a very trying time for us all with the threat of the COVID 19 virus. The markets are in free fall and businesses large and small are going to suffer. I, like a lot of other advisors have many years of experience under my belt. Many of us remember the major sell off of 1987 and every major correction since. I vividly remember seeing novice advisors avoiding client calls and some almost hiding, I kid you not, under their desk. Many of them did not last much longer in the investment advice business. But, many of us remained. And we learned from that and every correction since. Experience in this business matters a lot!

This is where we, as advisors, earn our keep and this is when the clients earn their profits for the future. This is what you should expect from your advisor in times like this.

We should be proactively calling all of our clients to add reassurance about the current market conditions. We humans tend to be somewhat logical in normal situations, but in time of danger we often forget our logic and act only on emotion. As advisors we need to keep the emotions to a minimum and advise with logic. And no, our phones are not ringing off the hook, because we are calling out to our clients, and we are not frantically selling and buying through these times. We are main street advisors not Wall Street traders. It doesn’t look anything like in the movies. The lesson here is to stay calm.

It is important during these times to stay diversified and invested. Remember asset allocation? Asset allocation is how you divide your money between stocks (equities), bonds (fixed income) and cash and cash equivalents (money market funds, short term CDs). How you allocated among these groups is so important that 80 percent of your returns are based upon this. Timing and individual security selection is of minimal importance.

This is the No. 1 tool your advisor should be using the adjust the risk to your portfolio. This recent bull market that just ended was one of the longest on record for our country. For this simple fact alone and other reasons most advisors would have or should have been increasing bonds positions and reducing stock exposure. This is an art more than a science. Going in to this many of my clients and other advisor’s clients are holding, in some cases, the most bonds vs stocks since we first entered the business. They have helped to cushion the downside for many portfolios.

One thing we do not do is to attempt to make changes during the meltdowns. We keep what we have. We wait for the inevitable shake out, the blood on the street as the saying goes, before we make recommended changes that the new environment brings.

Where might the new environment take us? Interest rates for investors are as low as they have ever been and are expected to stay there for quite some time. Jeremy Siegel of Wharton expects interest rates to stay low for several decades. Many investors reading this column will have a difficult time investing in only bonds and cash type of investments. They are safer than stocks but with interest rates this low it will be hard to make ends meet for many with these low rates.

That will lead us once again to stocks to help investors make ends meet. Opportunities are starting to appear. Exxon Mobil for example is currently (this may change) one of the only AAA rated companies in the world. It has a history (this may change) of increasing and never decreasing dividends. The dividend yield for Exxon is around 10%.

Most portfolios, in my opinion, should continue to be built around low cost, broadly diversified exchange traded funds and even some quality individual stocks. S &P 500 index, healthcare and technology indexes to name but a few. How can this current turmoil not benefit Amazon in the long run?

Actively managed mutual funds do not outperform unmanaged ETF’s in this or any market. This is contrary to what some of the purveyors of these funds spout. Show me the proof, any proof that they do.

Finally, and most importantly, please everyone be safe out there. Hunker down, as many of my northern friends say during the winter. This is serious business.

As much as we need to prepare for the inevitable stock market corrections, we need also to prepare much better for the inevitable “flu season.”We are not taking these things seriously enough. While the mortality rate of this virus is estimated to be one percent or more there are much worse viruses out there. One in particular has a mortality rate in the double digits.

Michael T. Doll, A.A.M.S. is an investment planner with Harbor Financial Services, can be reached at 941-896-2473 or at mtdoll@harborfs.com. This is the view and / or opinion of Michael T. Doll and not necessarily the views and / or opinion of Harbor Financial Services, LLC an SEC Registered Investment Advisor, whose headquarters is located in the state of Alabama.