24 Apr 2020 A Quick Update
We’re wrapping up an historic week for the US economy. On Monday, the unthinkable happened when oil prices dropped below $0 a barrel for the first time ever. On Thursday, the US Labor Department announced an additional 4.4 million first-time claims for unemployment, effectively wiping out all the employment gains added over the last 11 years.
As I write this, the stock market is up, partly because domestic oil prices rose 20% yesterday (Thursday) and global prices 9% to just over $22 a barrel and the initial jobless claims were in-line with expectations. Traders suggest the wild gyrations of oil prices will continue as demand improves with China emerging from their lockdowns, the US beginning to reopen, and supply uncertainty from new tensions with Iran.
Weeks like these, when uncertainty rules and information changes rapidly, remind us of the difficulty of timing the market. Amidst the chaos, one wonders how the S&P 500 can be down only ~2.5% during a week with such seemingly bad news.
I’ve talked with many of you over the past few weeks and seems that a common strategy these days is to turn off the financial media and take a break from checking your portfolio balance. That can be a great strategy during times like this assuming you’ve done the work ahead of time to ensure that you own a widely diversified portfolio and you’re not taking any unnecessary risk. If you’re a Beacon client, you can rest assured that we’ve worked hard to make sure that both are true for you.
If you’ve adopted the above strategy and wish to continue in it, you may skip this paragraph and the following chart. Otherwise, here’s a quick look at the at how the indices that comprise our Beacon Model portfolios have been doing relative to the stock market. As of yesterday’s close the stock market as measured by the S&P 500 had fallen 17% from its peak, but the sum of the indexes that comprise the Beacon 60 model portfolio (60% stock, 40% bonds) was down only 7.7%.1
Here at Beacon we’re continuing to practice social distancing by working remotely (Sam is holding down the fort at the Beacon house) and holding all our meetings via phone or video call. I’ve mentioned this before but please know that we’re an exclusively cloud-based firm, so we are all able to remain fully functional from any location provided we have an internet connection and a phone. That means we’re continuing to stay in communication with you, monitor your portfolio and plan and perform all our normal daily functions. Rest assured, we are on the job and available to you just like always.
Over the past few weeks we’ve talking about and working on things like rebalancing your portfolio -including your 401(k)- realizing investment losses for tax purposes and putting a plan in place to invest any cash that you’ve been accumulating. We’ve also written about ensuring that your beneficiary designations correct on your retirement accounts and life insurance policies and making sure your emergency account is adequate and earning somewhere around 1.5% interest.
What if you, along with your financial advisor, have accomplished all this. Are there other things that are worth considering right now? You bet… here are a couple things we’ve been thinking about and working on at Beacon…
Check your 529 plan investments. Most 529 plans offer some sort of age-based investment option that starts out more aggressive when you child is a long way from starting college but gets more conservative as college costs near. However, if you’ve opted to choose your own static investment portfolio in your 529 plan, now would be a great time to ensure that it is invested appropriately. If you plan to use all or some of the funds in your 529 account over the next few years you probably should have the money invested very conservatively. At the same time you could also ensure that the investments in your 529 accounts are low cost and diversified.
Review your life insurance coverage and income protection. This involves making sure you have the appropriate amount, duration and types of coverage in place. I recently asked our local insurance expert, Graham Ashe, if insurance companies had stopped issuing policies because of the current conditions. Much to my surprise, he said that, depending on your age and overall health, the process of obtaining coverage may be even more streamlined than usual. Apparently, many companies are not requiring the normal home medical exam if the applicant has had a routine physical within the last 24 months. As always, please let us know if you’d like some assistance in reviewing your coverage. We’d be happy to help.
Take a look at your budget. Or start using one. For some of you, this might be a necessity these days due to the impacts of the corona virus crisis. Or perhaps you’ve got a bit of extra time available to finally create one. Either way, please let us know if we can help. I find that having a well-crafted budget, rather than feeling restrictive, gives me a sense of freedom. I no longer have that nagging feeling of uncertainty about what we’re spending and we can confidently spend on the things we value. There are a lot of easy to use, online websites dedicated to personal budgeting available these days. Crystal and I use YNAB, but Mint is also a great tool.
If you’re a Beacon client you can be sure that we will continue to stay informed for you and alert you to any necessary changes to your plan or portfolio. In the meantime, please let us know if you have any questions or concerns.
1 The chart represents actual index movements, which may be slightly different than portfolio values due to fees and differences between the exchange traded fund values we own and value of the indexes at any given time. Past performance is no guarantee of future results.