Coronavirus Stock Market Plunge: Experts Tell What to Do With Your Money Now

Marcy Tolkoff, JD

March 16, 2020

Many physicians are very worried as they see the stock market fall and their savings and investments lose much of their value. Some fear the specter of a recession that will keep their savings and retirement funds in the dumps for years to come; others are wondering if they should take everything out of the market and put their money into bonds, CDs, or just plain cash—which won't gain value, but at least won't nosedive, they reason. Others say stay the course, since we've survived other crises that have impacted the market.

Whether physician-investors have investment portfolios that are nonretirement accounts or are inside 401(k)s, 403(b)s, or IRAs, the questions remain the same. To help guide you through this unsettling time, three experienced investment professionals answered some of the financial questions that people are asking.

Q. My portfolio took a big hit in the last month. Should I sell my stock holdings?

"One of the worst things you could do is to completely sell out of equities," says Meghan Shue, Head of Investment Strategy at Wilmington Trust, the investment advisory arm of M&T Bank, headquartered in Buffalo, New York. "We expect this to be a prolonged period of volatility with the potential for another decline by as much as 5% to 15%. The typical recessionary dip is 25% to 45% down for stocks, and we are already down 19%, so selling now would make it very problematic to determine when to get back into the market." 

To try and protect against further drop in the value of your portfolio, Shue recommended a modest reduction of equities in client portfolios. If you currently have a larger proportion of stocks to bonds/other investments, she recommends moving to fewer stock holdings and more bond, CD, or other types of holdings.

"We are still going to hold stocks, even if we were to advise a further reduction of equities in client portfolios," she says. "In general, if an investor's portfolio is properly diversified and they don't need a significant amount of money in the next few months, the best approach is to ride through the volatility."

General consensus is that market volatility is here to stay for a while, depending on the trajectory of the virus and the public policy response, as far as drugs and vaccines, and other factors. The wisest course is to keep calm, carry on, and keep washing your hands (but not of the stock market).

"Taking your money out of stocks and putting it in cash, also referred to as 'timing the market,' rarely works out well in the long run," says Steven Kaye, Managing Director of Wealth Enhancement Group in Warren, New Jersey. "It involves two decisions; when to sell and when to buy back into the market.

"Typically, most investors buy back in late and miss so much (because the market usually moves in big steps), that they would have been better off perhaps rebalancing their portfolios and being patient vs trying to predict the future," he says.

Rather than sell, some experienced investors say it's time to "go shopping," since stocks are essentially on sale at low prices. "If you're holding too much cash — say, due to a liquidity event such as a business sale — or have an overly conservative portfolio, this may be an opportune time to deploy some cash into an interesting stock or diversified basket of stocks," advises Shue. She also advises you to do research or talk to your investment advisor before making large purchases of individual stocks.

Q. Are we headed for a recession?

Even before most people heard of the coronavirus, it would appear that a "perfect storm" of concerns was brewing about a potential recession.  

First, "we are experiencing the longest economic expansion in post-World War II history," says Lewis Johnson, Co-Chief Investment Officer at Capital Wealth Advisors, in Naples, Florida. Against a backdrop of a cycle nearing its end, Johnson says, "we have a great deal of respect for the yield curve and have been carefully watching it since it inverted last August."

The yield curve typically reflects the short, intermediate, and long-term rates of US Treasury securities. The inversion of the yield curve — when shorter-duration bonds yield more than longer-duration bonds — is a sign of less confidence in the economy and has signaled recessions in years past.

Another area of concern is stock valuations, particularly for sectors like information technology, which was trading at historically high valuations a la pre-bubble days in 1999. Johnson adds, "We remember that period well and are thankful to note that we continue to find value in this market, only in different places from where many others are looking." 

Still, the aging cycle, inverted yield curve, and nearly full valuations prompted Johnson to be more cautious over the last 18 months, taking a larger position both in US Treasury bonds and the more conservative consumer staples stocks, companies that sell essential household goods. Coronavirus may be the straw that breaks the proverbial camel's back and, as Johnson describes, be a "prescriptive catalyst for recession."

A further source of stress arose after OPEC recently failed to come to an agreement on cutting production, and Saudi Arabia announced it will pump at will, which sent prices plunging. "The price of oil could go down to $20 or $30/barrel," explains Shue, "which would save consumers at the pump but mean a big loss for energy companies.

"Over the past 10 years, the US has become much more energy-independent, and exports tied to oil now account for about 10% of our economy," she says. "Also, with energy companies earning much less, some of the jobs may well be on the line for the millions of workers in that industry."

Markets generally move 6 to 18 months ahead of economies, so it's likely that recent events are harbingers of a recession. Shue says she expects a relatively short contraction for up to 6 months, and expects the US to rebound relatively quickly, rather than over years. Fortunately, the US economy was well positioned coming into the recent turmoil.

Q. Why did the Federal Reserve cut rates in response to the stock market — how are they related and will it help stocks go up?

The Federal Reserve cut the federal funds rate (the overnight inter-bank lending rate) by 50 basis points as a means of easing stress in the financial system, not just to try to stem the tide of falling stock prices. "Coming into this year, we had a new trade deal easing tensions between the U.S. and China, and were looking at around 2% GDP growth for 2020 — but lurking beneath the surface was an inverted yield curve and already-low interest rates," Shue explains. "That, plus, the coronavirus pushed the growth outlook down to as little as 1% and the Fed went into a more assertive mode.

"The rate cut is an attempt to make it easier for people to borrow money to buy homes and other big-ticket items, but it doesn't help with demand shocks and changes to consumer behavior," she says. "It won't, for example, make people more comfortable about taking that trip to Disney World."  

Q. Okay, so I shouldn't sell all my stocks — what other investments should I consider?

The dilemma here is that treasuries are already at all-time highs, with yields below 1% and quickly approaching zero. And if the Fed cuts rates again (which it may do again at the March 18 meeting), the return on cash investments will also be close to zero. Kaye believes most portfolios should reach beyond stocks and bonds and says that investors may want to discuss the following with their advisors:

  • Equity-linked structured notes are essentially bonds issued by the healthiest banks, where the return can be linked to the performance of an underlying investment (such as the S&P 500 or a group of stocks). They can be "structured" so that you give up or limit the amount you can earn in exchange for limiting the amount you can lose.

  • Private real estate funds that are conservative, low-expense, and income-oriented can provide real diversification and often provide positive returns when the stock markets are providing negative returns (a cautionary note: required minimums can be hefty and investments can be tied up for a period of years).

  • Fixed insured annuities that are no load, high-quality and shorter-term contracts may be a tax-deferred, higher-return alternative to CDs.

Q. I invest in mutual funds that invest in certain areas of the economy. Which industries have been most affected by coronavirus?

Globally, there are definitely certain industries that have been harder hit by the outbreak — whether the result of containment measures, such as quarantines and travel restrictions — from both supply and demand perspectives.

Automaker Hyundai, for example, had to stop production temporarily and factory shutdowns directly impacted Apple's iPhone production. On the demand side, travel is just one area that has been cut sharply.

According to Shue, "The most severely impacted and disproportionately affected global industries have experienced double-digit declines: airlines; apparel, accessories, luxury; automakers (excluding Tesla, which had an 86% recent share price increase); casinos, cruise lines and hotel chains; freight carriers; integrated oil; metals and miners; real estate developers."

Of course, the global equity market (in fact, even the Chinese equity market) is much broader than just the stocks in these industries. "When the coronavirus threat finally does recede, and the quarantines and travel restrictions have been lifted," she adds, "we would expect stocks in negatively impacted industries to likewise recover."

Q. What's the single best piece of advice you can offer at this time?

While it can be difficult during perilous times, all three experts say that having patience has been shown to reward the long-term investor. Kaye reminds us, "Markets are resilient over extended periods. Double-digit pullbacks in stocks are more the norm than the exception."

In fact, over the past 30 years, the average intra-year decline for the S&P 500 was almost 14%, even though the market finished higher in 22 out of 30 years," he said. "We will likely experience more volatility and possibly experience short-term price declines, but over the longer run we continue to have faith in the perseverance of the markets."

There is no shield against market shocks, but experts say that a written plan will help you track progress against achieving your goals and provide a semblance of order in disorderly times. Like a roadmap, your plan should be formalized in a written investment policy statement that sets out your risk tolerance, goals, time horizon, income needs, tax situation, and more.

Many physicians find it helpful to work with an advisor who is a fiduciary — one that is bound to put your best interest first. Johnson notes: "Markets go up the escalator but down the elevator, so you always want to be prepared and understand why you're invested as you are."

Marcy Tolkoff, JD, is a freelance writer based in Wilmington, Delaware and Fort Lee, New Jersey. She is Senior Client Communications Manager for Wilmington Trust/M&T Bank.

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