The midst of a worldwide pandemic seems like a dumb time for two of the world’s largest oil producers to start acting like twelve-year-olds, but that’s exactly what Russia and Saudi Arabia are doing. Their quarrel over production limits sent prices lower initially, and the widespread bans and limitations on travel because of COVID-19 have clobbered demand; a one-two punch to oil prices that helped send the financial markets—already fearful about the ongoing spread of coronavirus—into another tailspin. The Dow closed down over 1,300 points yesterday (March 18, 2020), down 33% from its all-time high in the middle of last month (seems a lot longer ago, doesn’t it?)
As I often say at this point, it’s time to take a few steps back and gain perspective. As I’ve been mentioning for a while now, market drops are always scary, and this one is no exception. But in hindsight, they always look different than when we’re in the middle of them. I don’t know how many of you had a chance to watch the webcast from Dimensional (DFA) last week, but even if you did, right now would be a good time to watch it again. Here’s the link:
Dimensional’s Jake DeKinder and Mark Gochnour do a superb job of reminding us all that everything depends on perspective. If you didn’t watch the webcast last week, stop reading right now, click on the link, and watch it. Seriously, watch it. I’ll wait right here…
Especially for my thriving retirees who are receiving that “drip” income from their portfolios, I want you to know that I have personally checked your accounts to verify that you have at least six months’ worth of income in cash. Just two days ago I reminded you that this is why I want you to “live on the drip”: so that when volatile markets like this one come along—which they always will, periodically—you don’t have to worry about your lifestyle being disrupted. If you need additional funds for some reason, please email my team, firstname.lastname@example.org or email@example.com, and we will take care of you.
For all my clients, I want to give you some advice that will pay immediate dividends in better mental and emotional health: limit your exposure to the daily news headlines. I’m not telling you to stick your head in the sand—this pandemic is a serious matter that will probably get worse in the US before it starts getting better. But if you need to get your daily dose of information about COVID-19, get it from the CDC. They have the most current and accurate data, and they also have the best advice about what you can and should do to stay safe and healthy. Here’s another thing you’ve heard me say before: the news media will do anything they have to do to get and keep your attention. Why? Because they need to sell ads. I’m a talking head, so I can say that, and I have seen it firsthand. Wash your hands and limit your exposure to the headline news that is telling you about the next wave of disaster.
I’ll say it again: there’s a lot of nerve-wracking news out there right now, and the markets are taking it all in and swinging wildly (both down and up—remember Tuesday?). But the Dow is not a direct reflection of your portfolio, because your portfolio is broadly diversified among various types of assets other than stocks. We build diversified, well-allocated portfolios precisely for markets like this one.
Finally, remember to keep things in perspective. When the headlines are screaming the latest statistics on infection and mortality rates, remember that according to the CDC, 81% of cases in China were mild, requiring little or no hospitalization. The same is holding true for those in the US, except that so far, our mortality rate is much lower, possibly because of demographic characteristics like a lower rate of smoking and exposure to air pollution. Risk is certainly higher for older age groups, emphasizing the need for all of us to continue following the guidelines for hygiene and social distancing and sequestering at home. The vast majority of the people who are infected will recover.
In fact, here’s an encouraging quote from a former Sacramento native, Tom Hanks, who was recently diagnosed with COVID-19. He and his wife, Rita Wilson, have been released from the hospital in Australia, where they are living, and are self-quarantining at home. On his Instagram account, Hanks writes:
Hey folks. Good News: One week after testing Positive, in self-isolation, the symptoms are much the same. No fever but the blahs. Folding the laundry and doing the dishes leads to a nap on the couch. Bad news: My wife @ritawilson has won 6 straight hands of Gin Rummy and leads by 201 points. But I have learned not to spread my Vegemite so thick. I travelled here with a typewriter, one I used to love. We are all in this together. Flatten the curve. Hanx
Hanks included a picture of his antique typewriter: A Smith-Corona. You gotta love that guy.
Remember, I’m always here for you if you need me. Email me at Kimberly@EmpyrionWealth.com. And, as always:
Stay Diversified, Stay YOUR Course!
Stay Your Social Distance, Wash Your Hands!