As many of you have heard me say over the last many years, it is best to view stocks and risk in advance before things happen.  So, each year or at any point in time you take all your stock market assets in 401k, at CPW, or any other provider and add up that value.  Then you multiply by .8 and that is what a 20% correction feels like.  It will not feel good just like it does not feel-good today.  Then you say would I panic, change my financial plan, or sell after the fall and sell at the bottom?  If the answer is no, then you look at the last number of 5.  If you hold those same companies and asset allocation for 5 years market returns tend to return to the mean.  

So, while it is too late to take risk off in advance, it is time to focus on the notion that you do not need the funds in the next 5 years. This is just a temporary disruption and owning quality companies over the long term have been one of the best returning assets over the last 100 years.  I expect that to continue.

Surviving a correction or market disruption is ok.  Rebalancing or taking capital gains after the fact usually doubles the pain come tax season.   Most of you are sitting on very large capital gains of quality companies you have owned for many years.  Those companies and their management teams have survived and thrived in 2008 financial crisis, Covid, 2022 when the Nasdaq was down 32% and much worse drawdowns than this current Tariff threat environment.  So, selling, rebalancing, or changing risk profile especially in taxable accounts is something I would be very wary of.  If you must reduce risk after the correction you, do it in your retirement accounts to prevent capital gains.  We are constantly reviewing and adjusting your asset allocation based on your goal, risk and sensitivity to taxes.

My last line in January was “Cash is not quite King but still a nice place to park some assets at around 4% yield down from 5% last fall.”   Most of you know my philosophy on cash is I tend to hold more of it in portfolios than most and more of an allocation to bonds almost 100% of the time.  Cash is for today and yesterday.  You can buy additional quality companies at much better valuations.  Use the cash for helping a family member or home project. Or just continue to collect that 3.5% to 4% interest with daily liquidity.   Cash not only cushions the blow, but it is also the key to have a great recovery year following a disruption by adding some risk assets at good prices.

As I have been saying in most of my pieces in the last 9 months the Magnificent 7 were due for a correction and it had to happen to get valuations in the market more to match earnings and the economic environment.  The Mag 7 is down 25% year to date. Technology has speeded up market corrections the last few times and that may be a good thing.  Covid was extreme and about 1/3 of the market disappeared in 40 days in 2020 to recover by the year end to positive 16% so that is an important thought to consider as this market continues to correct.

Just recently in 2022 the S&P 500 was down over 19%, followed by up years of 24% in 2023 and 23% last year (I know that feels like a long time ago).

What should you do now?

• Take a deep breath and know you own quality companies not the stock market.
• As recently as 2022 it was much worse, and you and your financial plan survived and thrived the following years.
• With excellent returns in 2023 and 2024, even with this difficult quarter and start to the year, your 27-month return would probably surprise you.
• We recommend we run your financial plan and look at results over the next 10 to 20 years.  We are doing that now and the majority of results show you are still on track.
• Look at other parts of your financial plan besides stocks and the market.  Cash returns at banks still near zero.  They should be 3.6% or more.  Estate planning documents, trusts and wills – Update those now.  The majority of estate planning professionals that I have been speaking with do not expect many rule changes this year but your family dynamic does change each year so important to do a review with your CFP and attorney.
• Review your cash flow portion of your client review documents.  Note the dividends and interest your portfolio still kicks off each month and quarter.  Consider reinvestment of dividends to capture some additional shares at lower prices.

Starting next week will be post tax season and want to start setting up in person meetings, Zooms and getting your financial planning goals and details up to date.  So please reach out with any questions and we look forward to getting together soon.