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Choose Your Own Adventure: Q1 2020 Market Commentary

By: Mark Paccione, CFA, CFP®, BFA™
3 Minute Read

The first quarter of 2020 was historic with a pandemic that led to a nationwide quarantine and market crash. After setting record highs in major U.S. stock indices in February, the U.S. and global economy came to a halt as COVID-19 spread from China to the rest of the world.

Concurrently, OPEC coordination seemingly fell apart as Saudi Arabia flooded the oil market with supply, undercutting all other suppliers, including U.S. energy producers. As a result, the S&P 500 fell more than 33 percent from its February 19 high through March 23. It recovered slightly to end down 19.6 percent for the first three months of the year—the worst quarter on record. In addition, the price of WTI Crude Oil was down a staggering 65.9 percent for the quarter.

What should an investor do right now in these uncertain times?

It’s impossible to give tailored investment advice through a widely-distributed market commentary. However, we’ve created an alternative to provide guidance for three different types of investors: the long-term investor, the nervous investor, and the opportunistic investor.

Similar to the “choose-your-own adventure” style of youth literature, we invite you to self-profile your investment style and move directly to the section that best suits you.

The Long-Term Investor

If you haven’t checked your 401(k) account or a brokerage statement for a while, recognizing investing is a long-term endeavor, you likely fall into this category. Our advice for you is simple: Keep doing what you’re doing. If you know you won’t be using the funds in the account for years, there’s no reason to change course at this moment unless your overarching financial goals shift. One action you can take is reviewing your allocation and financial plan with your financial advisor.

The Nervous Investor

If you check your investments frequently and are extremely concerned about the drop in your account balance, you may be a nervous investor. There’s nothing wrong with being nervous, as we understand the current environment is creating feelings of uncertainty and fear for many. However, the nervous investor is most at-risk during market declines, and we want to help you guard against what may be your natural tendencies.

Multiple studies have proven that investors often inadvertently act against their own interests out of fear. For example, DALBAR produces an annual study called the “Qualitative Analysis of Investor Behavior,” and its most recent report, dated December 31, 2019, shows average investor returns are consistently lower than average bond and stock returns as they routinely buy and sell at the wrong time.

You may be considering changing your long-term asset allocation by reducing the riskier stocks in your portfolio to sit in cash while you wait for the storm to pass. We strongly advise against this. If we use past history as a guide, the stock market will return to normal after the current volatility subsides. However, an investor that sells stocks after a precipitous decline and buys back in to stocks after the negative event has passed is at serious risk of locking in permanent losses.

In addition, the market will most likely be higher before we leave this time of high volatility due to its forward-looking nature. In other words, stock markets will most likely move higher before we know the economy has completely recovered from the COVID-19 pandemic.

The Opportunistic Investor

If you see the current declines across asset classes as a chance to purchase quality investments at discounted prices, you may be an opportunistic investor—and you likely have a higher appetite for risk-taking than the average investor. Fortunately for opportunistic investors, there are significant dislocations in the market, and the expected returns for most asset classes are now higher than they were at the beginning of the year.

If you were thinking about getting more aggressive before the recent market sell-off, this is the time to consider making the move. If you have cash sitting on the sidelines, this is the time to consider putting it to work. There are promising opportunities across asset classes that Curi Capital would be happy to discuss.

What Can I Do Now That I Know My Investor Profile?

If you are interested in learning how Curi Capital can design a portfolio that fits your preferences with a focus on achieving personal financial goals, please reach out to a member of the Curi Capital wealth management team at 984-202-2800. We’ve created asset allocations that address the three primary needs of an investor: capital preservation, income, and growth. We’ve also created a variety of investment solutions in each of these buckets that address different client asset sizes and preferences, including individual stock and bond portfolio solutions.

 

Please note: This material should not be considered a recommendation to buy or sell securities or a guarantee of future results. Curi Capital is a registered investment advisor. Registration does not imply a certain level of skill or training. More information about Curi Capital can be found in its Form ADV Part 2, which is available upon request.

Past performance is not a guarantee of future results. All investment strategies have the potential for profit or loss; changes in investment strategies, contributions, or withdrawals may materially alter the performance and results of a portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be suitable or profitable for a client’s investment portfolio.

Mark Paccione, CFA, CFP®, BFA™
Mark Paccione is Curi Wealth Management, LLC’s, Chief Investment Officer, based in Raleigh, NC.
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