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The Corona Virus and Your Retirement Portfolio: Sell, Hold, Buy?

Category: Financial and taxes in retirement

March 2, 2020 — Last week featured one of the biggest stock market sell-offs since the Great Depression. Panic set in as market professionals and plain old investors tried to sort out just how serious the impact of the Corona Virus – COVID 19 – will be on world trade and the economy. Could widespread shortages, school and factory closings, and forced quarantines throw the world into economic chaos? No one really knows, and that uncertainty was felt in the U.S. and world stock markets last week.

Some investors told their brokers to sell everything. Many advisors urged stay the course, particularly those who have the long view. Still others suggested maybe it was time to buy. Since this website is about retirement, our outlook is different from investors with a shorter time from. Last week we solicited Comments from several members on a related blog, and are reprinting them here. Please let us what you are thinking and doing about it.

Comments———-

I am sure on edge about my investments after the losses of this week. I wS told to stay the course, but at this point, I am not sure what to do. I have a gut feeling this is going to get worse before it gets better. I am very worried now. —- Maimi

It was amazing watching the run up over the past months so we were expecting some sort of correction but how weird to see the Dow at an all time high one day and a couple of days later be in free fall. Hopefully our investments are diverse enough to handle the dip. We’re sitting tight while we watch the news with our thumbs in our ears and fingers across our eyes. — Jean

We’re staying the course with primarily balanced funds, although those too are taking a hit. Glad they raised the mandatory distribution age to 72 1/2, though. Tough times for folks who have to withdraw now. — Staci

I don’t have a financial advisor but I do subscribe to several stock advisory services. So far, the services are saying to hang in there on their recommendations as the underlying value of the companies haven’t changed in the last couple of weeks and the investments are for the long haul. However, after the markets reached new all time highs several weeks ago, I sensed that things might be getting overvalued and I put stop loss orders in on all my holdings. I made the sell points rather tight relative to the then current share price and about half of my holding have stopped out. So I have a lot of cash in my account and I did use the sell off to pick up some new stocks or add to my current positions. Specifically, I bought some Chinese e-commerce and social media stocks that are cheap now but will shoot back up once the panic is over. — LS

I am my financial adviser. I have not trusted this market for the last 6 months and took a 75% cash position in January until after the election. I did buy this week. But, it still could go down more before it turns back up. No time to sell. The next 30 days will be most telling regarding the virus, but the next year will show the real impact to earnings as a fallout to what is happening now globally. MHO. — ljtucson

“Stay the course” (at least until we get out…)
I think this time will not be a quick bounce back. The Covid-19 deal is just a match lighting the tinder left by the Fed (and central banks worldwide) with their artificial 5,000 year low interest rates. It will all catch up now to real economics. If there is a quick bounce once the Fed cuts rate again next month (or in advance), it may be the last time to sell for a long while. I sold a lot about 2 weeks ago, but not nearly enough. First time I was scared out at the top instead of the bottom. —- Peder

Re. annuities, nothing wrong with them in principal (though the percentage the sales schmuck gets off the top is exorbitant), but these days, if an insurance company promises, say, 3-4% and can only buy bonds with a coupon of 1.5%, that leaves them starved for yield and drives them to ever riskier investments. Around 50% of the corporate bond market is BBB (the lowest investment-grade) and companies line up for them because of a fractional increase in yield. I imagine these days there are plenty of annuity managers who are sleeping even worse than you are. Also, not government guaranteed, if that’s important to you. Commissions on index annuities can be as high as 8% (money lost up front) and surrender charge terms as long as 15 years. — Peder

This is NOT the time to sell. Look at the crash of 2008 and how the market rebounded. Unless you must have the cash to pay for a wedding or something like that, hold on. I’m not saying the market won’t continue to go down, but at this point, the selling opportunities are over. Wait for the market to rebound. Even if it takes years, it will do so. Selling at a low point in the market is the worst thing investors can do. To quote my father, “This too shall pass.” — Ella

Thanks, Peder. I also am not a fan of annuities. Most have page after page of conditions and terms that many are not familiar with and which can hide major costs including those you mention. A super nice salesperson will explain it to you — accurately you hope. I also appreciate the comments you made about investment quality. I had not thought of that. — Self

I just met with my advisor, and I must admit, I have been panicked. She has been taking stuff out of the market and converting to cash for several months, so I am good there, but my first thought was to pull it all out of the market, convert to cash and stuff into my mattress. Of course, my advisor did not think that was the way to go! The last pandemic was influenza in 2009, and I do not remember there being such a run on the market at that time. Is everyone scared because of the virus’s economical implications as well as it being an election year? I never thought the market could sustain 29,000 – we just do not have the manufacturing or infrastructure to support in, in my opinion. So, what is one to do? — Lynne

Your comments. Please share your thoughts and plans below. Also, are you changing any of your other behaviors in light of the virus? Like not travelling, shaking hands, socializing, etc.

Posted by Admin on March 1st, 2020

23 Comments »

  1. About 10% of world GDP is directly or indirectly related to travel and tourism. Clip a lot of that off world output and all I see is cascading layoffs. The election is the least of our problems.

    by Peder — March 2, 2020

  2. Right now the S&P 500 is about where it was October of 2019. It’s still not that bad a time to sell if you’re unsure. At my age I may not live long enough to recover a 30-40% drop. The market’s had a great run and no one ever sells at the top or buys at the bottom. So you give back 10% on paper. The virus is still spreading and layoffs haven’t even started. I think this could be like a worldwide rolling 9/11. I also think the Fed (and other central banks) have led us like cattle into a blind canyon with their artificial interest rates. Where would the Dow be if interest rates were at those of the past several hundred years (about 2.5-3% + inflation)? I wouldn’t loan the government money at 1.1% when their inflation target is 2%. We keep borrowing our daily spending cash even in what advertised as “the best economy ever”. I have low confidence in the current administrations ability to handle either crisis. Trump looks at CV-19 as a “marketing problem”. Hammer/Nail, I guess… I’m a believer in the stock market, I’ve been 100% stocks forever, but my own mortality is shaking my confidence. I hope I’m wrong on everything, but after 1987, 1999, 2008, I don’t want to get clipped again. I just hope we don’t start another world war to get out of it.
    PS – My wise uncle once told me, “You’ll never go broke taking a profit”.

    by Peder — March 2, 2020

  3. Record one day gains on Dow, Nasdaq, S & P , etc. Let’s hope the rebound continues! Hubs reminded me that in the 1987 the Dow dropped 22.6% and we bought into that dip – and that is one of the things that set us on course to be able to retire in comfort. We’re not buying much anymore but I sure hope my nieces and nephews got in a little on this dip.

    by Jean — March 2, 2020

  4. Peder,
    Regarding covid-19, there is a lot of hysteria about this virus . The deaths in the state of Washington notwithstanding, it seems the virus is actually rather mild for most people. If you look at the timeline China reported that first cases were reported Dec 12 (or first cases sick enough to seek medical help). and China reported their first death in early January. The US CDC didn’t announce person-to-person transmission was confirmed until the end of January and President Trump then put the ban on flights form Wuhan early Feb (and was loudly criticized from doing so by the usual suspects). That means that for at LEAST 6 weeks – between Dec. 12 and Early Feb., flights were coming into the US and all over the world potentially carrying carriers. It’s likely that the cause of many colds this winter was the new corona (just like other coronas that circulate in the population causing colds). That would certainly account for the cases of unknow exposure that have been reported. The flu this year has caused thousands of deaths in the US, and while the experts report the death rate for COvid-19 to be higher than that for flu, it is actually impossible to tell what the death rate actually is because people who only have mild symptoms dont seek medical treatment; it could be that the rate is similar to flu or even lower. Until there is a test to show exposure to the virus and widespread testing of the populations the epidemiologists wont really be able to make an accurate assessment.

    Now about the markets, there will no doubt be some ups and downs as companies figure out how they are actually impacted but optimistic me sees light at the end of the roller coaster tunnel 🙂

    by Jean — March 2, 2020

  5. Me? Sold some more. Maybe one of us will be right, but I see no changes since Friday.

    by Peder — March 2, 2020

  6. I’ve been talking to my kids about what a great opportunity this is (income averaging, etc.). For me…not so much, like Jean and others. I have enough in my 401K in cash so that I don’t have to sell anything for about 2 years, but I’m queasy when I look at my mutual funds. I have a diversified portfolio of relatively conservative Morningstar 4-5 star mutual funds. I knew I didn’t have the courage (or brains, depending on how you view it) to try to buy low and sell high in my 401K.

    I just returned from a Caribbean cruise on one of the megaships, and was told that 20% of the passengers had canceled. As a frequent cruiser, I saw a definite increase in everything from hand washing (bottles of the hand sanitizer everywhere, an increase in ship cleaning activities; multiple emails & announcements with travel & other advisories; additional screenings of passengers; reminders about the available medical care). On a Facebook page for our cruise, people from the UK and other countries talked about how their travels had been impacted. There were also the usual people who felt it’s no bigger deal than any flu that can kill old people and people w/damaged immune systems, and that the pandemic thing is just some kind of conspiracy hoax on the world.

    Our family lost three children and their young mother in the 1918 Spanish flu pandemic, and stories had been passed down for generations. But on the positive side, there will be a vaccine in a year — so this crisis does have an end date in sight.

    by Kate — March 3, 2020

  7. The response to the 2008 market drop, by many, was to cash out of stocks. Cash was earning less than 1%. When the market rebounded, the panickers were way behind those who had stayed the course and kept their equities. And when home prices rebounded, those in cash were even farther behind. They didn’t get the benefit of stock reappreciation and the retirement house they wanted a few years earlier was now too expensive. The lessons are there if we choose to heed them. With an incredibly low inventory of homes today, panicking could be even worse for soon-to-retire folks.

    by Larry — March 3, 2020

  8. Jean – “Regarding covid-19, there is a lot of hysteria about this virus . The deaths in the state of Washington notwithstanding, it seems the virus is actually rather mild for most people.”
    That makes them even more likely to not skip work or school and continue to spread infection.
    At any rate, “we’ll see what happens”, as someone is wont to say. Trump seems to think this is just a marketing problem (hammer/nail, I guess). Limbaugh says it’s the common cold. Pence will try to pray it away. Fortunately, there are still a few (too few) competent people working toward a solution. Oh, well, I’ve lived my life. I surely hope it doesn’t burn through Africa like an Australian wildfire. Really too bad the Fed can’t print vaccines instead of greenbacks… 50 basis points won’t get me on a Disney cruise.

    by Peder — March 3, 2020

  9. Here are links to a couple of independent sites re. the virus:

    https://www.worldometers.info/coronavirus/
    Recovered – 94%, Deaths 6%, everyone else is still sick

    Johns Hopkins world map of infection distribution
    https://gisanddata.maps.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6

    by Peder — March 3, 2020

  10. FWIW, when there is a big down move like last Friday, it’s usually tested again in 3-4 days, and if not then, 3-4 weeks afterward.

    by Peder — March 4, 2020

  11. Source: CDC – https://pbs.twimg.com/media/ESWfIoHX0AEXR6w?format=jpg&name=small

    I suppose the administration can always spin this as “solving the entitlements problem:.

    by Peder — March 5, 2020

  12. Peder, we certainly weren’t “meant” to live this long.

    by RichPB — March 5, 2020

  13. Peder, I think sugar coating the truth will hurt Americans and that is what is happening right now. https://www.cnbc.com/2020/03/03/who-says-coronavirus-death-rate-is-3point4percent-globally-higher-than-previously-thought.html?__source=sharebar%7Cfacebook&par=sharebar&fbclid=IwAR3rafvVpuhkapafGQFHxQFn8c24X-opmizoxyQtWe2oaSMH2gXMXVkykFY

    by Maimi — March 6, 2020

  14. Just some solid info from John Hopkins.
    https://www.hopkinsmedicine.org/health/conditions-and-diseases/coronavirus/coronavirus-disease-2019-vs-the-flu

    An article by someone I respect. He feels we’re between stages 1 and 2.
    https://www.bloomberg.com/opinion/articles/2020-02-28/coronavirus-economic-impacts-must-run-through-four-stages

    A link to Der Spiegel. The article is by Nouriel Roubini. They don’t call him “Doctor Doom” for nothing!
    (The initial page is just the “Accept Cookies” thing you see everywhere now. Article is in English)
    https://www.spiegel.de/consent-a-?targetUrl=https%3A%2F%2Fwww.spiegel.de%2Finternational%2Fbusiness%2Fnouriel-roubini-on-coronavirus-this-crisis-will-spill-over-and-result-in-a-disaster-a-e811cf3b-d495-4c52-bf79-d872c8f164ac

    by Peder — March 6, 2020

  15. RichPB – True, we should all have been eaten by wolves in our twenties. But Will Rogers said it best:
    “When I die, I want to die like my grandfather who died peacefully in his sleep. Not screaming like all the passengers in his car.” Or drowning in my own bodily fluids.

    by Peder — March 6, 2020

  16. Oil. Who’d have thought?

    by Peder — March 9, 2020

  17. Yep — greed first followed by power.

    by RichPB — March 10, 2020

  18. RichPB- Spot on!

    by Barb — March 11, 2020

  19. I’m glad that I’m no longer in the Market because specialists are now predicting that this virus will be with us for at least 3 to 6 months. And since we are no longer working we are just staying close to home. and ordering everything to be delivered. Im happy I did all of my travelling when I was younger….

    by Mary11 — March 12, 2020

  20. I was 25% cash. Now I’m 33% cash. And I didn’t have to lift a finger!

    by Peder — March 13, 2020

  21. Peder, the interesting thing about your “automatic” rebalancing of your assets is that even though your cash position increased to 33%, I’ll bet the dollar amount in that position is the same!

    by Clyde — March 13, 2020

  22. Exactly right, Clyde.

    by Peder — March 13, 2020

  23. We heard a great comment from a financial pro about handling the crisis. RIght now bonds are expensive and giving very low rates. By comparison stocks that pay stable dividends offer a much better yield, even if they go down more in the short term. If you need the money, consider selling the bonds and keeping the stocks. For the future, we should all keep enough liquid assets so we don’t have to sell either stocks or bonds to fund one or two years needs, including any big expenses coming up like tuition or paying for a wedding. See https://www.nytimes.com/article/coronavirus-money-advice.html

    PS to Peder – Your comment about rebalancing was the most apt and (bittersweet) summary of the situation ever!

    by Admin — March 16, 2020

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