Staying Focused Through Covid-19

Dear Clients and Friends,

There are no words to describe what we are experiencing. In the news, in our communities, in our own homes, and in the financial markets/world economy. However, it’s important to have some perspective. Now is the time to take care of not only your finances; but yourself, your family, and your communities.

In this letter, we will cover the economy, investing and financial wellness, and general happiness.

“We always live in an uncertain world. What is certain is that the United States will go forward over time.” – Warren Buffett

Unanswered Questions

There seem to be more questions than answers right now. How dangerous is Covid-19? How long will the shutdown last? Will social distancing and working from home become the new norm? Where is the bottom of the market? Will the government stimulus be enough to staunch the economic impact?

One thing that everyone can agree on is that things are grim. The efforts to contain this outbreak have been monumental, unlike anything we have seen in our lifetime.

As we near the end of the first quarter, an economic slowdown is a reality and the odds of a full-blown recession are ever-increasing. That said, in my view, the markets have largely priced in these recessionary outcomes.

GDP and Unemployment

“Gross Domestic Product, also known as GDP, is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of the country’s economic health.” [1]

Approximately 70% of the United States GDP comes from personal consumption.[2] Before the outbreak and shutdown of the economy, the unemployment rate was at a 50-year low, and GDP growth was in the 2-2.5% range.

Some economists are estimating that we could see the GDP for the first and second quarters become negative which will plunge the U.S. Economy into an official recession.

Small businesses (especially those in travel, leisure, restaurant, and entertainment) are expected to lay off millions of people.

Labor Department numbers show the number of unemployment claims for last week rose to 3.3 million. The previous week, they were at 281,000. That 3.3 million figure dwarfs the previous record of 695,000 in October 1982.  

These numbers and the headlines they generate are important but need to be put into perspective. The media is in the advertising business– and dire headlines sell ads. We can’t control things like GDP and the unemployment rate. However, we can bypass the fear-mongering headlines and look to the past for a clue as to what might happen in the future. Use logic and reason, rather than emotion, to examine the state of our investments and financial goals.

Are Past Outcomes a Good Indicator for Future Outcomes?

Are people going to stop buying paper towels, toilet paper, and other home care and healthcare supplies?

Are people going to stop buying toothpaste and dish soap?

Are people going to stop buying bacon and other food products?

Are these companies really worth 20% less than they were a month ago?

The stock investments inside of our clients’ portfolios are not just line-items printed on paper. They represent ownership of businesses. Companies that employ people and produce goods and services for consumers around the world.

Think Long Term

“Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. Put out the bucket, not the thimble.” – Warren Buffett

Now is the time to think about your long-term strategy. This should include putting some cash to work in high-quality companies whose stocks are being sold in a panic and at lower prices.

Now is not the time to take a massive swing at one or two companies. There is too much volatility and uncertainty for that. Furthermore, it does not take into account your long-term objectives but is instead just a shot in the arm that feels good.

Look beyond the next six months – past Covid-19. Which companies would you like to own for 20% to 40% less than you would have paid just a month ago?

There are proactive financial steps that can be taken right now to potentially enhance your financial wellness.

Emergency Fund

These are boring, especially in a market that has been skyrocketing upwards until recently. Still, in times of turmoil, it is incredibly comforting to have a safety net to help ride out the storm. If you have an emergency fund, great! Now may be a time to use it. For many clients, we have cash and short-term bonds provide income during market volatility.

Opportunity Fund

An opportunity fund is money that you have had sitting on the sidelines waiting for a time to invest in the stock market, real estate, or buying a business. We have been recommending opportunity funds to our clients over the last few years. If you have an opportunity fund, now is likely the time to deploy it.

Refinancing Your Mortgage

If you have a mortgage on your home, vacation home, or rental property- you may want to consider refinancing. Rates are at historic lows not seen since 2012. That term feels overused; but it is true. We can help you analyze the sensibility of this for you.

Roth Conversions

The most recent market pullback has depressed assets and provides an opportunity to convert IRAs to Roth IRAs. With the new stimulus package, the Federal Reserve’s actions to cut rates, the Fed providing quantitative easing to stabilize the equity markets, and the national debt- it is our opinion that tax rates will be higher in the future than they are today.

Invest in You

As hard as life has seemed over the last month, it is undeniable that we live in an incredible country with the freedom to pursue happiness. The most important message of this entire letter is to invest in YOU! 

There are plenty of things you can do to help yourself, your family and your community.

Get Happy

Yale University is offering a course on the “Science of Well Being” which is designed to engage you in a series of challenges to increase your happiness and build more productive habits. https://www.coursera.org/learn/the-science-of-well-being

Escape

Books are a great escape. There is nothing like holding a physical book in your hands and reading. It helps keep your mind engaged and allows you to escape to a different time, place, or world. 

If you like eBooks, you can download the Libby app on your phone. Put your Library card number into the app for access to the Library’s digital books. If you do not have a library card, you can get one online at KnoxLib.org

Reach Out

Call a friend or relative whom you have not spoken to recently—check-in on them and their family. Tell them you are thinking about them and that you love them. Or even better, Skype or FaceTime with them!

Help Out

It’s been proven that helping others makes us happy.

“When we help others, we feel happy. There appears to be a direct correlation with overall well-being and giving our time, money or other resources to a cause that we are passionate about. Studies suggest that people who volunteer report better health and more happiness than people who do not volunteer.”

There are people and organizations in your community that are struggling. Even under social distancing, there are ways to help. Check local message boards like Knoxville’s subReddit, a neighborhood Nextdoor page, or various Facebook pages to see how you can help.

Work Out

If you’re used to working out in a gym full of equipment, working out at home can seem impossible. But it can be done. Even if you don’t have workout equipment at home, there are tons of workout videos on YouTube that only use bodyweight. No matter what kind of workout you want to do (yoga, HIIT, shadow boxing, Zumba), there are hundreds of online videos you can follow.

Get Out

Just because you can’t gather in groups doesn’t mean you are unable to leave the house. In most cases, you should leave the house every day. This simply means getting outside, even if it’s just sitting on your porch. If you have a non-crowded place to walk, run, or bike, even better. The sunshine, fresh air, and sense of open space are good for your physical and mental health.

You Are What You Eat

It’s so tempting to comfort eat and boredom eat when you’re anxious and stuck at home but be careful not to fall into a diet of junk food. The temporary pleasure isn’t worth the effects that start pretty much as soon as you finish the last bite. And there is plenty of evidence that eating well not only makes our bodies healthy but can help our mood as well.

If you have children who are home with you, now is a great time to get in the kitchen with them. Plenty of important life skills are not learned in a classroom and knowing how to properly feed your body is one of them.

There is Much for You to Control

I know you may feel powerless right now and that is frightening. Rather than focusing on those things, focus on what you can control, your decisions. Don’t make any decisions (about your finances or anything else) based on emotion. If you feel like you need to talk about your investments and financial strategy, we can schedule an appointment via phone or zoom. As always- we’re here to help. Take care.

Read more about our financial opinions and advice from our blog here! 

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The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

No strategy assures success or protects against loss. Investing involves risk including loss of principal.