The Delta Variant is throwing a wrench into the economic recovery as COVID cases spike. Companies like Microsoft, Wells Fargo, Blackrock, and Amazon are delaying returning to the office for their workers. Labor Day was a return date for some employers, but it won’t occur until January 2022. Officials canceled the New York Auto Show scheduled for August 20, and Comic-Con postponed its in-person event until 2022. Austin raised its COVID risk level to stage 5 – the highest level.
Global COVID cases now exceed 200 million, and they do not appear to be slowing down. COVID incidents in California, Texas, Florida, and New York continue to climb.
When COVID arrived and global economies shut down, the S&P 500 fell more than 35% as investors sold stocks. The market quickly recovered, but people were left scarred over the speed and severity of the drop.
The market continues to perform well despite fears over the Delta Variant. It has been volatile lately, and the S&P 500 dipped about 3% in July – not a significant pullback, but enough to cause concern with investors. I believe our elected leaders will not shut down the economy again, but people may be cautious about venturing out. And if consumers are nervous, they won’t spend money which may cause stocks to stall or sell-off. What can you do if you’re concerned about another market sell-off due to COVID? Let’s explore a few ideas.
- Buy bonds. Bonds are not an attractive investment from an income perspective, but they will provide safety if stocks fall. Bonds and stocks are negatively correlated, so when one rises, the other falls. When stocks dropped in July, long-term treasury bonds climbed 4.4%. When the S&P 500 crashed in March 2020, bonds rose 36%. Many advisors, including me, have panned bonds because of low yields, but you won’t find a better investment than bonds to hedge your stock holdings.
- Sell stocks. Since the market bottom on March 20, 2020, the S&P 500 is up 92%, so you probably have significant gains. If you’re worried about a pullback, sell stocks and park your proceeds in cash. Reducing your stock exposure lowers your risk level.
- Buy the dip. If you’re sitting on cash waiting for a correction, you can buy quality companies at lower prices when the market falls. I recommend creating a list of companies you want to buy, so when stocks fall, you’re ready to pounce.
- Rebalance. Rebalancing your accounts will keep your risk tolerance intact. If you have not rebalanced, your equity exposure is probably higher than usual. For example, if your allocation was 60% stocks, 40% bonds five years ago, then it’s 75% stocks, 25% bonds today – too much risk! Rebalancing your accounts once or twice per year is recommended.
- Stay put. The market rises more than it drops. For the past 100 years, stocks have risen three-quarters of the time, and it has averaged more than 10% since 1926. Trying to time the market because of what might happen is not a wise investment strategy. Investors who liquidated their holdings in March 2020 missed significant gains. A buy and hold strategy is still an excellent way to grow, or maintain, your wealth.
- Follow your plan. A financial plan can calm your nerves. During the COVID correction, we regularly monitored our client’s financial plans and investment portfolios. Though the market fell sharply, it did not impact our client’s financial goals. We recommended they stay invested.
I’m frustrated with the spike in COVID, and I don’t want to work from home or wear a mask. My heart aches for those infected with the horrible disease, but I’m hopeful it will pass shortly. In the meantime, be safe, and be patient!
To lose patience is to lose the battle. ~ Mahatma Gandhi
August 5, 2021
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.