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From the CFO: Investing During a Pandemic

From the CFO: Investing During a Pandemic

July 02, 2020
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Listeners of our weekly GWS market update webinars are accustomed to hearing CIO Aaron Tuttle and CEO John Gatewood hash out their views on the economy and financial markets. But with Aaron on vacation last week, I had the pleasure of stepping in in his place!

John and I had a great conversation not only about the economic impact of COVID-19, but also on some broader financial topics. The highlights are below, and you can catch the full video recap on YouTube.

The State of the Market

The increasing number of new daily COVID-19 cases hit headlines hard last week. In fact, on June 30, Dr. Anthony Faucci warned that new cases could reach 100,000 a day if people don’t follow mask and social distancing guidelines.

But while cases are increasing, deaths are still generally decreasing, which is maintaining some level of consumer confidence. We know more about the virus now, and the younger generation tends to have a lower fatality rate.

One of the biggest things to happen in the last few weeks was that the Q3 estimate for GDP increased by 3.4%; now, it’s in positive territory. What’s more, the estimate for Q2 has even risen by 2.7% (Source: New York Fed). As Chairman Powell said, “At the Federal Reserve, we are strongly committed to using our tools to do whatever we can—and for as long as it takes.” To us, that means the Fed will continue to print money.

What to Do With Cash

I get a lot of questions from clients that have excess cash asking if they should put it in the market. My answer? Yes, over time.

Remember after 2008 how many people moved to cash, but then they continued to sit on it? They were waiting for an opportunity to put cash back into the market—waiting for the perfect time when there would be no uncertainty. However, there is never a point in time where you look up to the proverbial market skies and see clear blue. The risk of holding onto cash for long periods of time is that it keeps you from being able to find a good entry point. Years go by, and you miss out on all that compounding.

What I try to explain to clients is to take a long-term point of view on this and strategically put cash in throughout the year, over a couple of months. It’s the next best thing to timing the bottom (which is impossible), and you won’t see much of a difference in 10-20 years between what those returns would have been.

Preparing for Economic Downturns

On our call, we had a listener ask, “What do you do to prepare the company for times like what we just experienced?”

It’s all about protecting risk. (More on that in this blog.) One of the biggest risks a business has is lack of liquidity; how many businesses did we see crumble that didn’t have enough capital to last 2-4 weeks? We’ve been very disciplined with our business model at GWS, constantly stress testing and running models, just like we do for our clients’ financial plans.

There will always be black swan events, but we want to anticipate as much as we can and stay prepared. We have to be extremely prudent, and everyone on our Investment Committee takes that calling seriously. If we were to get sloppy, it would put not only our company, but also our clients’ goals, at risk.

Age and Risk Recommendations

Many advisors recommend that clients get more conservative as they age (e.g., put most of their allocation in bonds). But the truth is, bonds aren’t paying anything right now, and allocation really depends on clients’ goals anyway.

For example, we recently had a discussion with a 90-year-old client who had done a tremendous job saving. She couldn’t have run out of money if she wanted to! Traditionally, she may have been in a more conservative allocation. But when we discussed her goals with her and realized she intended to give all her money to her family, we shifted the allocation to more equity. Now, we were looking at a 50-year time horizon instead of a more near-term one. Based on what clients are trying to accomplish with their money, we might recommend a 100% equity allocation, even in post-retirement years.

Follow GWS on YouTube

For the full video of John and my discussion, be sure to follow GWS on YouTube.. (If a recent episode isn’t posted there yet, it’s still in compliance review). And be sure to tune in to our weekly Gatewood Wealth Solutions Market Webinar to hear updates on the current state of the market and economy. As always, we welcome you to share the links to our broadcast on social media or with your friends and family. They are more than welcome to listen in and learn our perspective on the market and the economy.

If you have any questions, please contact your Lead Advisor or any other member of our team. We are here for you!

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Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing involves risk including the possible loss of principal. No strategy assures success or protects against loss.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

 

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