Beyond health, a big concern related to the virus crisis is the effect it has had on long-term individual savings and investments. To monitor investor responses, we talked, on April 21, with a wealth management specialist who has been fielding calls from individual investors. Zach Ivey is the chief investment strategist at Birmingham-based Bridgeworth Wealth Management. The following are Ivey’s observations.
Most of our clients have been with us a long time. This is not their first rodeo, seeing a market decline. In the market selloff, we did not have a lot of phone calls. They are used to market volatility, though there has not been anything as dramatic as this in a while.
Then, as the weeks went on and the state of Alabama started to show growth of the health problem, we started to get a lot of phone calls, to ask what we were doing and what we were thinking. The more the amount of news they consumed, the more scared they were.
“It’s different this time.” That phrase is a pretty well known and dangerous phrase for investors. But this time, everyone thinks it’s different this time. I don’t know anyone who has ever seen entire countries come to a halt, not caused by any other kind of event, such as a financial crisis.
This crisis has caused the demand to go away. Here is a unique situation, where there is still a supply driven economy, in which people want to go to restaurants, travel and shop, who are in self-imposed lockdown.
Our clients realize this uniqueness, so you have to do a lot of calming of responses. It’s not just the selloff in the stock market. Even high-quality bonds are selling off in value, and to see their face value go down is very concerning.
The first thing we try to do is come back to the client’s financial plan, looking at both the money invested and at the goals and objectives, reminding them of the plan and how long they have until they need the money, which is one situation, or for folks who are retired, how much on the safe side in their portfolio, in bonds and cash, how much time they have before they need the money.
No one knew COVID or whatever was going to take down the market to a selloff of 30 percent or so. That certainly was not on our radar screen. At the bottom of the market, March 23, the current bottom, I should say, most of the U.S. stock market was down about 35 percent, and the foreign markets were right with it. The S&P was down 30.5 percent and the mid and smaller cap stocks were close to 40 percent. Thankfully, the markets have rebounded. The S&P is now down by 14 percent, and the mid and small 30 percent.
We’re in a double-barrel situation: the virus and the economy. With the virus, there have been some changes and improvements. But, then, there is the reality of the economy — with companies reporting bad earnings, job losses and the disruption in the oil market. The uncertainty of how quickly it will recover is weighing on the market.
We know that managing portfolios is in part risk control — what we own and choose to purchase. But the other half is self-control. We try to help clients maintain that emotional balance, with education and information, and the client relationship. Human beings can go from fear to greed in a short time. When markets are going down and heart rates are up, it’s fight or flight. Then the very next day, when a stock is down 80 percent, the same person might think they can double their money.
I am thankful that I have a team of eight people who help me to do investment research. There is always a question of do we want to try to dig in and become medical experts, or if its oil or this or that. If you get your news from the mainstream, it’s made for general consumption or with a bias. What we want are boots on the ground, to give us an information edge, to help us understand where the puck is going. You are forced into researching issues outside your expertise, to expand your expertise, reaching out and talking to doctors and researchers.
One point I want to make is something that I learned long ago: That not everything that can happen will happen. Times of stress take us to worst case scenarios and anxieties. When you look at the modeling of the virus, what people forget is the dynamic nature of events. People assume the variables will stay the same, assume that if the virus is spreading at this rate there will be massive carnage. What people neglect to remember is that situations are always dynamic, and, when they have to change, they will change. The status quo is not sustainable for any company or country. It’s not a naive belief that things will work out, but a recognition that you have to also account for the dynamic nature of situations. That is the norm rather than the exception.
It is a little different this time, the recession, although it is not being called that yet. As a technical recession, it will be one of the steepest, but it is different in that this is a self-imposed recession. You do lament the job losses — 22 million, 13.5 percent unemployment rate, which could go up or could go down in a quick fashion. If you are a business owner, the people who work for you and your suppliers are the most costly part of your business, but if you are quick to fire employees, especially in the services industry, those jobs are going to have to be rehired quickly when the economy reopens, and that demand is still there. Even if we reach a stark unemployment rate, it can be quickly resolved.
Zach Ivey is a partner and chief investment strategist at Bridgeworth Wealth Management. The company has fiduciary certification as a Registered Investment Adviser. Ivey is a chartered financial analyst (CFA), certified financial planner (CFP) and chartered financial consultant (ChFC).