Financial Advice for an Unstable Market
Anyone watching the news in the last six weeks has heard gloom and doom predictions for the economy and the stock market. Many look at bar graphs of market returns which show steady slash to the lower right \ and immediately begin to panic which can lead to emotional reactions to investing. While the prospect of lower markets is frightening, don’t liquidate your investments just yet. Despite what is touted through the media, the best advice is not to panic.
Many investors have planned for just this sort of occurrence and have already planned for it. If you have a financial advisor and you have diversified your portfolio, then you want to trust in the diversification process. While some stocks or mutual funds may have dropped significantly, others may have risen. Your plan for diversification should have already been personalized to your needs and circumstances and adjusting and rebalancing over time – whether automatically or at the behest of an advisor who is watching things for you. Generally, the older an individual is, the less risk you should take in the event you need to draw from your investments. A typical investment plan will involve rebalancing and reducing risk as age and needs change. However, for others, risk may be appropriate and already considered in an investment plan. For example, an older adult who has income sources outside of his/her investment portfolio, such as rental real estate or a guaranteed pension, may be relatively unaffected by fluctuations in his/her investment portfolio, and he/she may have invested to take more risk. Whereas someone in retirement who is drawing income from investments, with little or no additional income source, cannot afford large market drops; therefore, their diversification strategy should have already included investments which protected from pull- backs in the market.
If an individual doesn’t have an advisor but has invested in targeted funds such as those offered by low cost investment firms which target a retirement year, then those funds were already diversified. Fund managers are regularly rebalancing those targeted funds and alter exposure to market swings over time in order to stay on track for the targeted date.
In addition to not overacting, an investor should trust in the market and historical market cycles. History has shown that, despite setbacks and recessions, the market has always returned and increased over time. Many investors became frightened of investing in the stock market after the recession of 2007-2009. However, those that reacted and left the market suffered the greatest financial loss. Nerdwallet.com has a calculator which illustrates the gains and losses in a portfolio invested in the S&P 500 before and after major market events. For example, $100,000 invested in the S&P 500 on October 7, 2007 would dip to a low value of $43,200 at the bottom of the market in 2009. However, the value returned completely on March 28, 2013 and was worth $206,400 on December 31, 2019. Left alone, the portfolio recovered with gains. The loss only occurs if an individual sells when the market is low, which unfortunately occurs when an investor reacts to emotion rather than sticking to a pre-determined plan.
If you are one of those older adults who has been drawing from your investable assets, this may be the time to use liquid assets (CDs, money market accounts, savings accounts) to pay monthly bills. By doing so, you’ll avoid selling investments at a time when they are low and thus suffering those losses. By waiting a market cycle, you may be able to recapture losses and potentially gain.
While older adults have different needs and less time to recover from market losses, younger investors may find that this is a good time to take advantage of a low market and buy securities now. Younger investors who buy low can take advantage of future increases. For example, $5,000 invested in the market in October of 2009 would have been worth $11,250 in December 2019. Younger investors have more time to let funds grow before they may need them in retirement and can handle market swings better than those who need their investments to pay daily living expenses.
Regardless of whether you are in retirement and drawing from investments or just starting a career, the advice regarding investing in the stock market does not change, despite the pandemic. Don’t act on emotion. Follow a plan, and trust in the market.
Ask Kit Kat: These Pigeons Don’t Mix
Hook Law Center: Kit Kat, what can you tell us about the pigeons in New York and Boston?
Kit Kat: Well, this is so cute! Who would think that there would be a geographic boundary between pigeons? Well, apparently there is! The populations in the two areas are genetically different. This is the conclusion of Elizabeth Carlen of Fordham University in New York City. Along the Eastern Seaboard from Washington, D.C. to New York, one species of pigeons exists. Then, the more rural state of Connecticut seems to act as a barrier, and another species of pigeons exists from Providence, RI to Boston. Ms. Carlen comments, “That was really weird to think about. The suburbs of Connecticut don’t just mark the boundary between Yankees and Red Sox fans, or tomato-based and cream chowders: They also seem to block pigeons.” Initially, she had thought that each city would have its own type of pigeons, since previous studies had shown that most pigeons stay close to their birthplace. However, this may be only partly true, as obviously a few ventured beyond their normal habitat.
Satellite images of the East Coast at night reveal that the state of Connecticut appears to be quite devoid of artificial light when compared to the urban sprawl of the DC to NY corridor and then the RI to Boston corridor. This may be the factor that caused the two populations to develop as separate species. More research will be needed. Jonathan Losos, an evolutionary biologist from Washington University in St. Louis thinks Ms. Carlen’s research is extremely important. It further sheds light about the way species react in urban settings. He says, “Pigeons don’t just thrive in cities—they seem to cling to them when they disperse. And in turn, that sets up urban ‘islands’ where pigeons could evolve differently in the future.”
Stay tuned for further developments about this subject. (Joshua Sokol, “New York and Boston Pigeons Don’t Mix,” The New York Times (Trilobites), April 23, 2020)
Letha Sgritta McDowell
757-399-7506 | 252-722-2890
Letha Sgritta McDowell is a Shareholder of Hook Law practicing in the areas of estate planning, elder law, special needs planning, estate and trust administration, asset protection planning, long-term care planning, personal injury settlement consulting, guardianships & conservatorships, and tax law. Ms. McDowell’s clients range from high-net-worth individuals with over $75 million in net worth to families with limited assets.
Ms. McDowell is a past President of the National Academy of Elder Law Attorneys and was named as a Fellow of the prestigious American College of Trusts and Estates Council (“ACTEC”) in 2020. She is certified as an elder law attorney by the National Elder Law Foundation (“CELA”) and Board Certified as a specialist in Elder Law by the North Carolina State Bar Board of Legal Specialization. Furthermore, McDowell is accredited to prepare and prosecute claims with the Department of Veterans Affairs.
Ms. McDowell is currently the chair of NAELA’s strategic planning committee, a member of the Board of Directors for the North Carolina Chapter of NAELA, and a member of the Board of Directors for the Purdue Center for Cancer Research. She is the former Chair of the North Carolina State Bar’s Elder Law Specialization Committee and is the former Editor-in-Chief of “Gray Matters”, the newsletter for the Elder Law Section of the North Carolina Bar Association. She is a consultant for InterActive Legal and has worked on several law and technology initiatives including IBM’s Watson project. Along with her experience practicing as an attorney, she has dedicated much of her time writing for national publications including, but not limited to: Wolters Kluwer, Wealthmanagement.com, the NAELA Journal, Trust & Estates Magazine and many more.
- Elder Law
- Estate & Trust Administration
- Estate Planning
- Asset Protection Planning
- Long-Term Care Planning
- Special Needs Planning