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Quarterly Client Newsletter

The Virus and Investing

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Client Newsletter    Volume XXV   Number 4  May 1, 2020

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The Virus and Investing

The coronavirus’ effects are causing negative economic effects, large ones.  Corporations are losing sales, making losses rather than profits, letting off workers.  Their suppliers are, likewise, contracting.  Workers without jobs cannot spend as much, and most everyone is spending less since social distancing at home.

Vanguard’s Total Stock Market Index ETF has, at the pit of the decline in the stock market decreased in value by 30% (since December 31, 2019).  As this is written, in the early AM of April 29th, the stock market has gone back up by 60% of that decline.  About two-thirds of clients are concerned about the losses (and possible future stock losses).  Many are facing loss or reduction of job income. The other one-third wonder if this is (or has been) an opportunity to buy stocks when stocks are cheap.

I am counseling “staying the course” unless short-term needs for cash from investments have increased due to economic difficulties.  There is no guarantee that that 30% decline will be the end of the bear market and there is no clear outlook on how long the economic difficulty may last and/or how long the recovery (posited but not guaranteed) will take.

If stocks always went up in value, they would pay no more than bonds pay long term (which is significantly less than stocks have increased over a couple of centuries of US economic history).  The price for owning that potentially favorable asset, stock, is to have to bear the fluctuations, big, negative fluctuations, occasionally.  There is no way around this short of buying one form of insurance or another.  The insurance costs so much that it is not worth owning.

We own bonds because, regardless of our financial condition today, we might need to spend money from our investments tomorrow, even if stock values are still “in the tank.” Bonds have performed well, holding their value or even increasing in value, federal government bonds better than corporation bonds.

If you have questions or concerns about your investments, do not hesitate to give me a call or send an email.

What Are YOUR and MY Asset Allocations?

Each of us has a different ability to live with uncertainty (risk) and so our investments will be different:

As of  March 31, 2020 Clients John Smartt
Money Market Funds 1.9 4.2%
Bond Funds 33.3 24.6%
Stock Funds 64.8 71.2%
Totals 100.0% 100.0%

 

Remember each of us has different goals and needs and our asset allocation should fit us and our family.

If you have questions about your asset allocation, or your retirement plan investments, I’d be pleased to assist.

Vanguard Rates of Return (through Latest Quarter End)

Performance percentages are per Morningstar.  Amounts in parentheses are percentile rankings

(1= best and 100= worst) within category.

Periods ended March 31, 2020 Yr.-to-date 5 Years 10 Years
     
Total Stock Market Index Admiral -20.9% (58) 5.7% (36) 10.2% (21)
Tax-Managed Capital Appreciation Admiral -20.0% (45) 6.5% (18) 10.5% (7)
Tax-Managed Small Capitalization -32.2% (48) 0.5% (12) 8.1% (4)
REIT Index Admiral -24.1% (44) 0.5% (45) 7.9% (39)
Total Int’l Stock Index Admiral -24.3% (67) -0.7% (37) 2.1% (60)
Balanced Index Admiral -11.6% (17)  5.1% (8) 7.9% (8)
Total Bond Market Index Admiral 3.3% (17) 3.3% (13) 3.8% (34)
Interim-Term Investment-Grade Bond -0.5% (8) 3.2% (31) 4.6% (48)
High–Yield Corporate Bond -10.6% (21) 2.9% (7) 5.5% (8)

 

For comparison, here are several stock and bond benchmarks:
Periods ended March 31, 2020 Yr.-to-date 5 Years 10 Years
S & P 500 (large stocks) -19.6% 6.7% 10.5%
Russell 2000 (small stocks)

MSCI World Index

-30.6%

-21.1%

-0.2%

3.2%

6.9%

6.6%

BBgBarc US Aggregate Bond Index 3.1% 3.4% 3.9%
ICE BofAML US High Yield Master II TR

(bond index)

-13.1% 2.7% 5.5%

 

Vanguard mutual funds and ETFs (exchange-traded funds) continue to perform as expected.  I expect each Vanguard fund or ETF, for each ten-year period to be in the top 1/3 before taxes based on low cost, and they ought to be in the top 1/4 (stock funds) after income taxes.

The Vanguard High Yield Corporate Bond fund takes significantly less risk that the average “high yield” (also known as “junk bond”) fund.  The Vanguard fund, which takes less risk, continues to rank reasonably highly in the rankings over the last ten year period.  When the more risky portions of the “junk bond” investment sector are under stress, the Vanguard fund shines, as it is doing so at present.  Over the last ten years the Vanguard fund has captured more than 3/4 of the excess of junk bond returns over good quality bond returns—meeting my expectation.  I continue to believe that, for tax deferred accounts, this fund is a reasonable, additional diversification and comprises some of my personal bond holdings.

If you have questions about your investment asset allocation, please contact me.

John Smartt-Registered Investment Advisor Representative

After being the head of my own “organization” (a sole proprietorship with only myself as an employee/owner), I have become affiliated with Patriot Investment Management (“PIM”), an SEC regulated registered investment advisor headquartered here in Knoxville.  Continuing investment management clients will know that this changes very little, I continue to be responsible for all services to my clients, continue to work from a home office, no changes in costs to clients.  With no plans on retiring, but continuing to grow older, when I eventually do retire, my clients have a clear path to PIM for their investment management needs.  PIM also will begin to do all of my regulatory work and will provide me with my professional liability insurance coverage.

 

So for clients, very, very little change and more continuity.

Virus, Various