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Coronavirus - What Are We Going To Do?

Coronavirus - What Are We Going To Do?

March 16, 2020
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In periods of extreme volatility like we have witnessed over the past few days, I want to assure you that I am no ostrich hiding my head in the sand. Our process at Miller Wealth Management is to construct a personalized portfolio based on individual cash flow needs, so that we are not forced to sell into a dramatically falling market environment in order to fund our living expenses. Additionally, we follow the news and certain economists that have proven credible over my career.  With that in mind, I want to share with you some facts that we are considering in our current portfolio positioning:

  • Total active cases of COVID-19 (Coronavirus) fell to 46,222 on 2/26/2020 from the peak on 2/17/2020 of 58,747
  • Like the normal flu, the older you are, the tougher COVID-19 is on your health. See the chart below:
  • The virus is especially lethal for people with compromised lung capacity. China has high smoking rates and terrible air quality. If these two factors contribute to mortality rates, then I expect mortality rates outside of China to be better.

  • The virus is especially lethal for people with compromised lung capacity. China has high smoking rates and terrible air quality. If these two factors contribute to mortality rates, then I expect mortality rates outside of China to be better.

  • Many have said it lately, but the Coronavirus is not going to be a “Zombie Apocalypse”
  • The CDC estimated that 42.9 million people got sick during the 2018-2019 flu season and 61,200 people died. Approximately 1.4% mortality rate
  • The Coronavirus has a bit higher mortality rate, but it’s still the flu. It’s more aggressive and has a death rate of 2.3%
  • We have had a number of scares like this over the past 30 years. And we have recovered from them all. Below is a great chart that illustrates the various epidemics and the stock market impacts since 1981.

I have received a lot of calls and emails with similar questions and conversations. I’ll summarize my thoughts in the Q & A below.

 

  1. What can we do with our investments to protect ourselves from this?
    • To be honest, my clients have an investment strategy that is already optimized for you. It was built in a way to weather short term market volatility. Even if we took half of our aggressive components and moved that to cash today, we would still need to make decisions about when to move it back into the market. So if we moved 20% of the portfolio to cash, and then the market dropped another 10% from here, AND we were smart enough to buy back in at the very bottom, we would only move the needle on our portfolios by 2% in total return. And that’s the best-case scenario where we time everything perfectly.
    • Alternatively, we can reconsider some of our more aggressive holdings and use structured notes or buffered investment vehicles to reduce the downside movement over time. I have spoken to many clients about this strategy and continue to feel that using structured investments can provide us with a great tool that aims to reduce risk over a market cycle. However, even the notes won’t protect us in a short-term highly volatile environment like we have today. If the concerns are more extended, such as a longer-term recession or flat market over a period of years, these tools can prove to be quite useful.

 

  1. Can we take advantage of the “blood in the water” and get aggressive?
    • I love the idea, and this answer is specific to your plan. As I mentioned, we design each portfolio with a focus on cash flow in order to be able to weather these storms. If being aggressive will put your predictable cash flow distributions at risk, then we are very limited in terms of adding money to more aggressive positions. On the other hand, we could reallocate our more aggressive positions. However, we have to sell in these down markets in order to buy as well. That sounds a lot like making moves with limited net benefit.

This is the type of process that we at Miller Wealth Management are taking into consideration every single day. However, in times like these, I want to reassure you that I am on top of it. I am thinking about you and your investment portfolio.

If you would like to contact me to discuss this or any other matter, please feel free to call to schedule a phone appointment at 760-856-4429.

In the meantime, enjoy your round of golf, or your vacation, or your walk on the beach. I’ll do enough worrying about all of this for the both of us. Thank you for your partnership.

Content in this material is for general information only and 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.

All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

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.