US stocks (S&P 500) posted the seventh worst percentage decline since WWII (-7.81%). The markets fell, not because of the virus, but because Saudi Arabia announced an oil price war and an increase in production. While this is great for consumers, it is not good for the energy sector of the economy or the banks that made loans to energy companies. It increases the chances of a recession and potential for dislocations in the financial sector.

This, too, shall pass.

These type of days are never fun, but remember you have a plan that was designed specifically for you and assumed worse markets than this. Our job is to proactively identify opportunities that increase your plan’s chance of success. Believe it or not, there were opportunities to be captured yesterday.

Please see the slides below. The first slide shows how a sample 70/30 (stock/bond) portfolio has been positioned this year. We have been underweight international and emerging market stocks and overweight bonds. This has worked out great since bonds have done really well while non-US stocks have not. Having risk management in place has kept losses smaller than they would have been otherwise.

1. Tactical Positioning


2. Buy Low: US Stock Market


3. Buy Low: International Stocks


4. Buy Low: Emerging Market Stocks


5. Sell High: Bonds


Here are a few of things we did yesterday and last week:

Tax Loss Harvesting

This involves selling one security at a loss and buying another similar security. The goal is to capture the tax loss and use it to offset gains elsewhere in the portfolio. If you have holdings you wish you could sell, but can’t because of taxes, this strategy allows you to lower such holdings without paying taxes and without changing your exposure to the market.


As bonds perform better than stocks, their weighting in the portfolio increases. Bring the portfolio back in balance is called rebalancing. This involves selling an asset that is “high” (bonds) and using the proceeds to buy something that is “low” (stocks). How do we know what is high and low? Please see the attached charts. When the price peaks out of the top band, we consider that “high” (circled in red). When the price peaks out of the bottom band, we consider that “low” (circled in green). It is not perfect, but provides us guidance and a point of reference.

Put Cash to Work

Who doesn’t like a 20% off sale?! Understanding the market is under pressure and will likely continue to be under pressure, we put some (not all) of the cash to work recently.

Moving forward, we expect volatility to continue. Consequently, we will continue to be invested conservatively.

Please don’t hesitate to contact me with any questions!


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