Investment adviser provides advice on how to navigate through tricky waters
By Lou Sorendo
While his clients are understandably upset by the economic and health aspects of COVID-19, they are certainly not in a panic, said Robert Rolfe of Harmony Financial Services, Oswego.
Rolfe provides securities and investment advisory services through SagePoint Financial, Inc.
He provided a glimpse as to how investors are reacting to the COVID-19 pandemic.
“In my experience, I would reflect that my clients are disturbed by the economic and health aspects of the pandemic,” he said. “We discuss both aspects and reach logical conclusions together to best impact their current situation and long-term goals.”
Rolfe said he has not experienced any level of panic among investors in the wake of COVID-19.
“I have not experienced panic,” he said. “I have had multiple discussions with a majority of my clients. We continue to monitor the situation, recommend adjustments where appropriate, and continue to educate.”
Some experts say financial markets have not seen the bottom yet and annual earnings could be negative for the next year or so.
“Investors are concerned,” he said. “Stock prices in large part are driven by earnings. History has certainly seen after-shocks of volatility following the Great Depression, the energy crisis, 9-11, and the Great Recession of 2008. Much like those events, we have a developing situation which we are adjusting to daily.”
For the first quarter of 2020 to May 1, the blended earnings decline for the S&P 500 was reportedly 13.7%.
While consumers tend to be more conservative in spending on goods and services during a downturn in economy, they also question the risk status of their investments.
“In some cases, people with lower tolerances for risk, or those taking income now have asked if it was prudent to reduce risk at this time,” Rolfe said. “I recommended a fair amount of risk reduction in late February and March.”
The focus now is focused on what areas of the world and the economy were needed and used before COVID-19 and what areas will be used in the future “as we adjust to a ‘new normal’,” he said.
Rolfe compared COVID-19 and resulting volatility in the financial markets to past episodes, such as the credit crisis of 2008 and 9-11.
Since 1900, this is the fifth global market meltdown. Unfortunately, it’s also the third this century,” he said. “Historically, markets decline rapidly first, much like falling off a cliff. Then the volatility subsides, and we begin surveying what the future holds.”
As it stands now, there could be substantial unemployment for some time to come.
“Small business has suffered terribly, as have many major industries,” he said. “Markets typically precede a full economic recovery by months or even years” as investors purchase equities in anticipation of future profits.
What’s the plan?
In terms of retirement savings, Rolfe said fewer than 25% of the American population has a formal written retirement income plan.
“So, if they have one in place, it is clearly time to collaborate with their financial professional, measure how this pandemic has affected them, and determine what steps to take to minimize those risks,” he said. “For those that don’t have a written plan, I would recommend that they contact a financial professional and put a written plan together soon.”
Without a written plan, people can make financial mistakes and then have the risk of running out of money prematurely, he added.
Rolfe said a person or family’s retirement plan should be focused on understanding the money needed to spend on the cost of living, such as health care, food, utilities, taxes, insurance, housing, and transportation.
“Then wanted expenses should be considered for things like gifts, hobbies, entertainment or travel. Then you need to consider rising inflation for 20 to 30 years, depending on your age at retirement,” he said.
Rolfe said for needed expenses, it is helpful if a majority of those can be met by fixed income such as Social Security and pensions if available.
“That allows for personal retirement savings to focus on leisure and inflation,” he said.
“Most people are not going to be able to predict a financial or health crisis,” Rolfe said. “That’s why it is so important to truly understand the risks you are willing to take with market volatility, as well as the risk of declining spending power during retirement.”
For those investors with more than 10 years until retirement, Rolfe would suggest that their most important risk to consider is inflation.
“So, I would encourage them to continue to save in their retirement plan and IRA now, while prices are lower to buy more shares with their money,” he said.
“That allows them to participate fully in the potential of future market gains. I would also say they should explore their risk tolerance, and make sure their investments are calibrated with their goals and thoughts on risk,” he said. “Regular rebalancing can help maintain consistent levels of risk.”