In 2019, one of our goals as a firm was reviewing accounts for risk tolerance. All accounts have an investment objective assigned to it. For example, our most conservative investment objective is income with capital preservation. The goal in this investment objective is to “preserve capital.” Therefore, this type of account may have the least percentage invested in equities and a very large percentage in bonds, gold and cash.
As a standard procedure, we look at the investment objective from time to time to see if we need to change it to something more conservative or maybe simply rebalance the portfolio from time to time, possibly due to shifts in the accounts that may not match the correct percentage. This in turn could make the portfolio too aggressive (for example, maybe equities percentage should be around 20% and because of market increases, maybe becomes 30%…in that case, hypothetically, we would want to re-adjust or reallocate (selling some of the equities to reduce the percentage back down to the targeted percentage and use the proceeds to purchase something that is too low, such as bond, gold or cash.)
In many cases, we have reallocated portfolios, causing many trades in your accounts, some minor trades and some full liquidations and purchases. This is purposeful and well thought out. This has been part of our plan over the last year. We have known at some point, the potential for a recession might cause us to make adjustments. We have not deviated from that plan and we will continue to “clean things up.”
Let me be clear…we are not trying to “time” the market. It does not work. While you may see us liquidating some equity positions and raising cash in your accounts, I assure you that we are looking for places to move the cash to such as domestic equities, fixed income, bonds or gold.
In some cases, we may be keeping a percentage of your portfolio in liquid money markets. This may only be for a short amount of time.
Media outlets have us all focused on volatility in equity markets but there’s been a short term casualty with so much capitulation: bonds. Without getting too technical, equity market volatility caused investors to have to liquidate their conservative investments in the last couple of weeks. Bonds and gold became short term casualties of the “need” for liquidity. With a “rush to cash” mentality, bond and gold prices temporarily suffered price losses, with an over-supply of bonds and gold being dumped back into fixed income markets, without enough buyers to buy them, causing the bond market prices to suffer.
We believe this to be a short term situation that can work itself out with increased demand in fixed income and gold for investors.
We have a plan. Although we never figured we would need to move our plan forward for something like the Coronavirus, that is why you have a plan in the first place. Have we had to make some adjustments to our plan “on the fly?” Of course. A plan has to be flexible enough to make adjustment. We will continue to make our adjustments along the way, as we gather more information from all our partners, investment companies that manage billions, if not trillions of dollars.
All along the way, we will continue to keep you posted as fast as we can. We are a very regulated industry so information has to be reviewed before being sent and sometimes that holds things up.
Stay tuned…this Friday, we will be hosting another video conference and of course, we are open for business, so if you have a question, please call or email. All staff are working remotely but I am in the office if you need me.
Stay well and stay inside…if you continue to socially distance, this could be over quicker than we expect. Continue to take care of each other and your entire families and stay healthy.
Daniel J. Murphy, CFP®