Community Voices: How to Invest During 2020

Retro microphone with minster bank community voices with steve eiting wealth management advisor text

In our Minster Bank Community Voices podcast series, we’re giving you expert advice and tips from the professionals inside our organization. 

Today, we hear from Steve Eiting, a wealth management advisor at Minster Bank with more than 20 years of industry experience, on what you should be thinking about for investing in 2020. 

Listen to the full podcast here or read the transcript below. 

How has the market changed from the beginning of 2020 to now?

In the wake of the coronavirus, we went from having a very strong economy with the stock market hitting record highs with almost 3% unemployment, and by the end of March, the stock market was down about 35%. And we now have between 15-20% of the population unemployed.

In the 23 trading days from February 19 to March 23, the stock market dropped 35%. In the following 24 days, the market went up 35% and we are now down about 15% from market highs, or about 10% from where we were a year ago.

In comparison to 2008 to 2009, the market high occurred in October 2007 and reached its low about 18 months later in March of 2009. From that point, it took almost three years until March 2012 to get back to the 2007 highs.

How does this compare to the Great Recession?

In 2007 and 2008, the market correction was caused by weaknesses in the larger banks. This downturn has been created by a medical situation and second by the government shutting down industries to contain that virus. So since the market was on such strong footing before this virus occurred, the thinking is that once the economic restrictions are lifted, that the market will rebound fairly quickly.

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Should I be worried about my portfolio? 

It’s only natural for people to be concerned about the economy and the stock market. However, we have to remember that corrections in the markets are normal.  

Since 1901, the stock market has provided 87 years or 74% positive returns, and 31 years or 26% of the time negative, with an annual average return of 11.6%  In the 75 years since 1945, the market has dropped more than 30% five different times and five more times the drop was 20 – 30%.

We encourage all investors to have a financial plan and stick to that plan in both good times and in bad. Having a plan helps us to focus on our long-term goals and to tune out some of the short-term noise. 

At times like these I recommend that if people are going to look at their statement, they focus on the number of shares they own. Even in an economic downturn, the number of shares won’t decrease, and will actually increase if they are still contributing to their investments, like in the case with a 401(k) plan.

Should I start selling my stocks?

During market volatility, people’s inclination is always to want to do something. That is a very personal question.  

I think now is a great time to review your asset allocation (mix of investments) and make sure it matches your long-term goals. If your financial plan tells you that you have sufficient assets to reach your long-term goals and the recent volatility kept you from sleeping at night, now may be an opportunity to trim some of your more volatile investment holdings so you don’t have to experience the next market ups and downs.  

However, if you are a long-term investor and understand that there will be ups and downs in the market, but you are confident that over the long-term that stock investors will get rewarded with higher returns, you should probably stay invested. 

No matter what the people say on TV, it is extremely hard to try to time the market.  To do so successfully, you have to time the market correctly twice. You have to know when to sell (at the top) and when to buy back in (at the market bottom). From January 3, 2000, to December 31, 2019, the S&P 500 returned an annualized return of 6.06%. 

If you missed just the 10 best days of the market during that 20-year span, your annualized return would have been 2.44%. Six of the 10 days occurred within two weeks of the 10 worst days, so it is impossible to miss the bad days but be invested on the good ones.

For most investors, the path to success is time in the market, not timing.

So we need to be invested over long periods of time to allow compounding interest and dividends to help our investments grow. 

How do the market changes affect me if I am just starting out? What if I’m closer to retirement? 

If you are younger and investing for retirement, a correction like this provides long-term investors with the opportunity to buy their investments at a discount. It has been said that stocks are the only thing that people don’t like to buy when it is on sale.  When we are younger and buying at a discount, we have the opportunity to add more shares to our portfolio. I always recommend that people begin saving as soon as possible to allow the power of compounding to help them grow their portfolio.

For older investors, your asset allocation (or mixture of stocks, bonds and cash) comes into play more. Hopefully, you have your short-term needs (money needed in the next one to three years) invested very conservatively in cash, savings, CDs or other secure assets. For your intermediate-term needs (three to seven years), you can invest a little more aggressively with a mix of bonds and dividend-paying stocks.  

For your longer-term needs, you can invest even more aggressively with the hopes of earning a return higher than the rate of inflation. When the market is up, you would fill the more conservative buckets, and when the market is down, you only use the very conservative assets and don’t sell any stocks until the market recovers. 

The Rule of 72 says if you’re earning a 7% rate of return, your total investment will double every 10 years. So obviously the earlier you get at least some money in, it has the opportunity to grow and compound. 

What should I be thinking about for the rest of the year in terms of my investments? What do analysts predict for the market in 2020? 

If you watch TV or read long enough, you will see one expert predicting new record highs, with another predicting an even bigger crash. The truth is no one knows for sure, but that doesn’t sell books or get you on TV.  

If the economy opens back up without a huge spike in cases, the economy should get back to prior levels within the next couple of quarters. However, if the virus comes back and new cases spike, we could see the economy slow and the markets drop.  

Rather than focus on what the market will do the rest of this year or even early next year, we try to get people to focus on where the market will be five years from now. Companies are making tremendous strides in technology and healthcare. Supply chains will change. Good companies with strong balance sheets will survive and thrive.

If you think the economy will grow over the next five years, it takes a lot of stress away from worrying about what the market will do tomorrow.

How can a financial advisor help me plan? 

Your advisor should be doing more than helping you pick investments. They should help you put a plan in place and stick to it. The steps they should walk you through include:

  • • Gathering data and helping you determine your personal and financial goals
  • • Analyzing your current financial situation
  • • Developing and presenting a plan
  • • Implementing the plan – including allocating investments to different styles 
  • • Monitoring, reviewing and updating the plan – part of this includes maintaining an unemotional process for rebalancing and decision making

If you are not happy with the service you are receiving from your advisor, you have to ask more questions and get the level of service you need.

Tips for finding a good financial advisor

One thing I would do is ask your friends and family who they work with. And another thing is to meet with that person beforehand and make sure you’re comfortable with them on a personal level. If you don’t relate to them on a personal level, chances are you won’t be comfortable with the investing process. 

How can Minster Bank help me invest? 

At Minster Bank, we try and focus on tax-advantaged investing. So we look at what ways we can not only earn the highest return for the least amount of risk, but we want to make sure we’re paying the least amount of taxes that we have to.

The nice thing about working with Minser Bank is we’re a team, so we have multiple advisors we can bounce things off of. So never does someone’s plan go unlooked at by someone else. We also have a lot of oversight here in our trust department … we review all of our accounts at least on an annual basis in front of a committee in front of a board of both internal and external investors.

Contact a wealth management advisor at Minster Bank

The professional wealth management advisors at Minster Bank can help you create a plan for the future – no matter your age. 

Contact us today to see how you can get started. 

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