It was the largest sell-off of the S&P 500 and Dow Jones Industrial Average (Dow) since the Great Recession in 2009. From February 19, 2020 through Thursday February 27th, the S&P lost over 14% and Dow lost over 15% sparked by fears of what the Coronavirus outbreak would mean for global supply chain and the overall economy.
Trillions of dollars in market value were wiped out in the course of a week sparked by global panic. Talking heads on TV were telling everyone to run for the hills – and yet a broad majority of Denver Private Wealth Management’s clients remained calm. Sure, there were a few calls asking our opinion on what was happening, but for the most part clients weren’t worried because they knew we’d planned for this already.
Now, am I saying DPWM planned for the spread of a virus originating in Wuhan, China that would throw the global and US economies into a tailspin starting on February 19th, 2020 due to fears of what the outbreak could mean for global supply chain? Of course not. However, because we focus on a comprehensive approach to our clients’ portfolios, we make sure they understand the potential for corrections like this to occur.
Here’s What You Can Control
I always tell my clients that I want to “control the controllables” when it comes to their finances. While I believe strongly in our investment philosophy and the potential upside over long periods of time, I’ll never tell you I know where the stock market is going tomorrow. And if you ever meet an advisor who guarantees they know what’s going to happen…that’s your sign to run for the hills.
However, when Denver Private Wealth Management works with clients, we make sure to explain that while we can’t control the stock market, we can control the following:
- Your financial plan.
- Your cash flow and tax obligations.
- The probability of success based off different factors and different investment returns.
We can stretch, pull, poke, and prod all disaster scenarios that can occur with your finances and what objectives we need to achieve to insulate the risk of them occurring. Then, when markets perform poorly, our clients aren’t panicked over it because they’re prepared; we’ve already gone through the potential doomsday scenarios and what it can mean for them.
So, Where Do We Go from Here?
Let’s do what we can to create healthy investment accounts for you by making sure your account is diversified and in line with your risk tolerance. Not all portfolios are created equal and the way we invest doesn’t necessarily have to be correlated with what’s going on in the stock market. Diversifying across different asset classes like US stocks, international stocks, fixed income, and alternatives can help to diversify away some of this risk.
Just keep in mind that when markets are down like they are now, the loss in your account is only a “paper loss.” You still hold the same amounts of shares of your investments; it’s just that the price of those shares has decreased. If you’re able to ride the wave and let the price hopefully bounce back, then you will avoid this “paper loss.” Losses only become real when you sell the holding.
Bottom line: Take a hard look at your accounts and ask yourself these two questions:
- Am I unhappy because the account value is down?
- Do I think my money isn’t properly invested?
There’s a big difference between these two questions! Your answers will help you decide whether you need to create a new plan or if the one you have in place is still working for you.
Unsure about your answers to these questions? We’re happy to take a look with you. As always, DPWM is here to assist you with creating a financial plan that fits your lifestyle and your future.
Denver Private Wealth Management is an independent fee-based financial planning practice with 50+ years of experience in the financial industry. DWPM customizes portfolios based on your financial goals and works closely with you, your tax advisors and estate attorneys to form a comprehensive view of your financial situation. For more information or to set up a free consultation, contact us at firstname.lastname@example.org.
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