Keep calm and don’t monkey with your IRA.
That’s the advice from Upper Valley financial advisers last week as they fielded calls and emails from clients worried about their retirement savings in the worst stock market plunge in more than 30 years.
Less than a month after the stock market repeatedly surged to a series of new historic peaks capping the longest bull run in history, the rapidly spreading COVID-19 virus is upending the global economy and raising fears of a recession while pulling down the value of investments and savings for retirees and soon-to-retire workers.
“We certainly have had an increase in phone calls and inquiries from clients, all of them expressing concern, should they do anything differently?” said Robert Boon, managing director of Mascoma Wealth Management, which manages $266 million on behalf of 515 clients.
“And our answer is a boring and standard ‘No.’ This is typically (the time) when amateur investors lose money and sell at the worst possible time,” Boon said.
By Thursday, as COVID-19 officially reached the pandemic stage and business-as-usual was seeing its biggest disruption since the 18-month Great Recession of 2007-09, the Dow Jones Industrial Average had fallen 28% since its Feb. 12 peak and entered bear market territory, defined as a retraction of 20% or more.
But it rebounded somewhat late Friday, shooting up 9.36% from Thursday.
The Upper Valley, despite its sparse population, semi-rural geography and absence in many common suburban conveniences, has a high concentration of wealth as the result of many retirees and individual millionaires who live in the area and entrust their money to local registered investment advisers.
Financial disclosure filings with the Securities and Exchange Commission show that at least $1.5 billion in total private money is managed by local firms in the Upper Valley located in Hanover, Lebanon, New London, Woodstock, Norwich and Lyme (the total in fact is likely to be significantly higher because it excludes money managed outside the Upper Valley at national firms such as Wells Fargo, Morgan Stanley and Merrill Lynch).
“It’s a fairly wealthy area,” acknowledged Tim Fisher, chief executive of Fisher Financial Advisors in Hanover, which manages a total of $131 million on behalf of clients.
But the market crash also affected, at least on paper, the fortunes of thousands of Valley residents with 401(k)s or other retirement accounts.
Although the Dow — an index comprising the stock prices of 30 bellwether companies meant to reflect the U.S. economy — had climbed steadily from its trough of 7,552 in 2008 to a peak of 25,551 on Feb. 12, people forget how fast things can change when the economic news shifts, as it did in the housing bubble financial crisis that triggered the last bear market, Fisher said.
“We’ve seen this before. This was the longest bull market we’ve seen. It shouldn’t surprise anyone. When there is a correction, everyone is surprised at the severity and how quickly it occurs,” he said.
Fisher said the question people should always ask themselves in regard to their retirement savings when the stock market goes into a downward trend is “When do I need the money?”
“If it’s not in five years, I wouldn’t panic,” Fisher said. “If you need, next week, to buy a house or a boat or to retire, then you should have a more conservatively allocated portfolio.”
A conservatively oriented portfolio for a person in their late 50s and 60s typically would be allocated 60% in stocks and 40% in “fixed income” securities, or bonds. Those ratios can flip and be weighted more toward the fixed-income end of the spectrum as a person approaches or enters retirement, depending upon her or his own particular comfort level with risk.
“We have about 200 clients and I think I’ve had about three nervous phone calls,” said Fisher, whose firm requires a minimum deposit of $250,000. “Any responsible adviser knows his client well and has advised them on the allocation of stock, bonds and cash” so they are ready for market volatility.
Although the Great Recession sidelined many lives through layoffs and foreclosures, the subsequent 11-year bull market made prolonged market reversals seem unusual.
Tony Abbate, owner of Granite Value Capital in Hanover, points out that there have been 12 bear markets since 1946, ranging in length from three months in 1990 to 30 months from 2000 to 2002 after the tech bubble burst (the Great Recession bear market lasted 17 months, only the fifth-longest of the 12).
Abbate said the stock market was already sending strong signals that it was overdue for a “correction” because the price-to-earnings ratio of stocks has been above 20 for much of the past three years — the same period in which the Federal Reserve has held down interest rates.
“Whenever you get to a P/E ratio of around 20, you see a sell-off in the markets,” Abbate said, who manages about $100 million on behalf of 70 clients — about half of them in the Upper Valley and the other half in other states — and requires a minimum balance of $750,000.
Contrary to the perception that retirees are stampeding out of the stock market and into safer investments like Treasury bonds, Abbate said the quickly lower stock prices are actually causing some to push more of their chips to the center of the table.
“Using history as a guide, stock market declines typically last three to 15 months. This is the 13th bear market since the end of World War II. The average decline from peak to trough is 33%. Odds are we are more than halfway through this decline,” he said.
If a retirement savings account is appropriately hedged against a market downturn — as those for people approaching or in retirement should be — than the shock will not be as great as the overall market drop, investment professionals point out.
Todd Allen, a senior portfolio manager in the Norwich office at Mascoma Wealth Management, said he’s had three calls in the past week from his clients asking what they should be doing (unlike many wealth management firms, Mascoma does not require a minimum balance to open an account) and he’s reminded them of the safety inherent in a diversified portfolio between stocks and bonds.
The value of the portfolio may decline, Allen acknowledged, but the decline will not be as severe as the headline-grabbing stock market indices would otherwise indicate.
John Lippman can be reached at jlippman@vnews.com.
