The most important aspects of major market drops are don’t panic and try to have a plan going into it. I’ve been through at least 5 drops in my career when markets have fallen more than 30%. What I’ve learned is to prepare. As they say, “in times of peace, prepare for war”. That’s exactly what we’ve been doing for the past 2 years specifically and what we have been doing for the past 30 years in our planning meetings with you. 

The globally diversified, asset allocation portfolio is built to withstand a financial hurricane. Virtually all Stonegate portfolios have a good weighting of fixed income for ballast in stormy seas. In general, the portfolios are 25%-50% fixed income coming into this drop.

Fixed income performance in the bond and short-term portfolios over the past 2 months are between +2% and +8%. The Enhanced Income portfolio, which was reduced by 50% and moved to bonds a few weeks ago is down about 11%, year to date. Recall however that this portfolio was up 13% in 2019. All in all, the bonds are doing what they should, and the reduction of Enhanced Income was a good tactical move albeit I wish we’d done it slightly sooner.

Going forward, there’s massive uncertainty for the economy. The capitalist system is very resilient, however. Yesterday, I heard somewhat encouraging news from an interview with Starbuck’s CEO, Kevin Johnson about the company’s experiences in China during their Covid lockdown. 60 days later Starbucks has reopened 90% of its stores in China and business is beginning to rebuild. Therefore, I think the 60-day period is a reasonable timeframe from which to judge what our experience will be like in North America. That takes us to May 15.

Over the next 60 days, it will be very uncertain. To that end and to further protect your portfolio we will move about 12% of our fixed-income holdings from bonds to near cash as possible. This move will further strengthen the safety aspect of portfolios and provide protection against a “credit market lock up” which were hearing wind of. This is not a panic move. It’s a strategic move to greater certainty and liquidity. Fixed income weights will not change. The move may trigger some capital gain but, as a rule, you never let taxes cloud reasons for good portfolio planning.

Equity portfolios are down substantially as you would expect, 25-30%. Recall that over the past 10 years you have earned anywhere between 85%-135% returns within these portfolios. We’re giving some of that back now. We’ve been in conference calls with most of our portfolio managers and suffice to say, we are doing the best we can, and portfolios are full of great companies that will rebound when things get back to normal.

The Stonegate planning model is working notwithstanding this massive and lightening quick sell-off. Having a plan and not panicking is all we can control right now.

Please contact us with any concerns or questions.

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