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 Greensboro, NC 27410

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Coronavirus, Decision Making, and March Portfolio Update


By now, you’ve seen countless articles and heard numerous soundbites about the coronavirus (COVID-19) and its impacts thus far around the globe; there is a growing, but limited number of cases in the United States. Whether you are fearful about the impact this virus will have on your health personally, or the health of your retirement nest egg - or even your business - it’s important to understand what is in your control and what is not. Clearly, whether the coronavirus continues to get substantially worse or not is indeed very important; but that is completely out of anyone’s control.


We want to inform you and make sure we’re sharing a realistic, yet calm, perspective on what’s going on and how it will or could impact you now or down the road. Although this is a widespread development, and many are rightly concerned, we want to ensure that our objective, disciplined approach will remain intact as we strive to be a constant amid the uncertainty surrounding us.


It is important to realize these facts:


- So far as of this writing, only 2, scratch that, 6 people (as we’re writing this note - Washington State did a live update stating that 4 new deaths reported) have died in the USA from coronavirus.

  • The COVID-19 has not so far been affecting younger populations as much as it has affected those above 70 years of age and those who are more immunocompromised or debilitated.

  • While mortality rates for those have been significant for those in older populations it has still been incredibly low, especially relative to the panic that is manifesting itself in the news, relative to other viral infections that hit in the past (Ebola, SARS, MERS, etc)



It is impossible to know the full extent of the spread of this virus and how exactly that will affect various investment markets. In the final analysis, even the most informed predictions are likely to be way off the mark. Whatever the final extent of the coronavirus, we know that it is always critical to have a predetermined, proactive, risk management process. Even if you knew (no one truly knows) and we knew that there is no cause for concern of a pandemic hitting the globe, investment markets can be driven by irrational emotions. As John Maynard Keynes once put it, “Markets can stay irrational longer than you can remain solvent.” This has been proven in all markets, over nearly all time frames, all over the world.


One exercise that’s been valuable to us and to countless clients over the years is the “Is it important and can I control it?” exercise. The coronavirus is the most recent headline that gives investors pause and has created volatility in the markets that doesn’t feel good emotionally. Before reacting, use the framework that follows to help guide your emotions. We’ve included some examples below:



It is important to consider several things that are important and you/we can control?

  • What to invest in?

- Which asset classes should be considered for my portfolio?

  • How much should I invest in each asset class?

- What “baseline” allocation should be in my portfolio of each investment type?

  • When should I make changes to those allocation amounts?

- Are there asset classes that are performing better than others?

  • How often should I check my investment statements and news about financial markets?


Regarding that last point about “checking your statements and financial news” - research has shown that there is an inverse relationship between the frequency of checking statements and investment performance. Said in another way - the more frequently you check your statements, the worse off you are likely to perform in your investment accounts. This is due to the fact that investors are more prone to let emotions drive their decisions rather than allowing the system, advisors, and plans to do what they were put in place to do. Put bluntly - if you want to achieve your investment goals you need to stick to your plan and let your financial professionals help you do so.


People often get stuck in the trap of judging decisions based on the wrong factors and the occasional “lucky outcome” stemming from a bad process. The more data you have and the more predetermined your approach is (less impacted by emotional overreactions) the higher the quality decision you can make.

Here are a few quick headlines that show the difficulty of knowing how to react if you’re trying to “read into headlines” or listen to analysts’ opinions.

- BlackRock Investment Institute: “Growth should edge higher in 2020, limiting recession risks. This is a favorable backdrop for risk assets.”


This variety of headlines and stories from talking heads only highlights the need for a calm, cool, collected response to market moves. As we saw on Monday’s close (3/2) stock markets were back up again and show the continued volatility present in this current market environment. It’s more important than ever to allow us to keep you on track by diligently executing our process. We have several great resources showing and supporting the value of sticking with your process that we can provide to you. One is the book, the “Emotional Investor”, and another is our guide called “Avoiding the $1 Million Mistake”. If you haven’t yet seen either of these - please let us know and we will send you copies of each.


As always, please reach out to your advisor if you want to get back together to continue discussions about your goals, risk tolerance, and any other significant life changes. Also drop by just to say “hi” and see our new offices at 1931 New Garden Rd, Ste 220, Greensboro, NC 27410.


If you feel good about the goals and expectations we’ve discussed with you over the years - then there’s nothing to have anxiety about. In fact - one of the main reasons most of you have hired us is to help guide you to and through a stress-free financial life.

Below are the general broad asset classes utilized in Spartan portfolios and their model-driven exposure heading into March. Also, we have attached our “normal” monthly note content below.


At a Glance: Allocation Adjustments heading into March, 2020

  • U.S. Equities: decreasing due to an intermediate-term downtrend. Long-term uptrend remains in place.

  • International Equities: decreasing due to intermediate-term downtrends in both Foreign Developed and Emerging Markets.

  • Real Estate: decreasing due to an intermediate-term downtrend. Long-term uptrend remains in place.

  • Fixed Income: remains in uptrends across all timeframes, increasing exposure from global equities entering intermediate-term downtrends.

  • TIPS: unchanged and remains at target allocation in all Spartan portfolios.

  • Short-Term Notes and Cash Equivalents: unchanged in all strategies except Conservative, which will increase due to the strategy’s emphasis on capital preservation.

Asset Level Overview


Equities and Real Estate

With year-to-date returns rising as high as 5% during the second half of February, U.S. Equities experienced one of their sharpest declines on record, falling over 12% in 6 days to enter an intermediate-term downtrend. The main contributor to this downtrend being uncertainty around COVID-19, or Coronavirus. Revelations about new outbreaks outside of China without a definitive source have erased gains generated in the U.S. markets. Long-term uptrends remain intact for global stocks but the intermediate-term has turned negative both domestically and internationally. The net result is an underweight allocation to all equity markets heading into March with those allocations being re-allocated to historically less volatile assets such as U.S. Treasuries.

Like U.S. stocks, U.S. Real Estate was largely unaffected by recent news until the final few days of the month. It has since experienced its own steep decline pushing it into an intermediate-term downtrend. The long-term uptrend remains intact for now.

Fixed Income

U.S. 10-year yields have declined to new all-time lows as COVID-19 causes a “risk-off“ effect across many global markets. As a result, Fixed Income continues to enjoy a strong start to the year as an asset class. In the U.S., longer duration issues have performed particularly well, increasing as much as 12%. With intermediate-term downtrends cropping up across the equity segments, allocations to Bonds will increase to overweight status within Spartan portfolios throughout March.

Three potential macro catalysts for the recent trend changes:

  • Coronavirus: Preliminary economic data is indicating that the COVID-19 outbreak is having a larger than expected ripple effect throughout the global economy, especially as more cases are diagnosed outside of China.

  • Weak U.S. economic data: February also brought some of the first evidence of a slowdown in the U.S. economy as a result of the COVID-19 impact. The “IHS Markit” flash composite purchasing managers’ index for February fell sharply into contraction territory, indicating the first decline in U.S. private-sector activity since 2013.

  • Falling U.S. interest rates: A multitude of fears permeating markets helped drive demand for Treasuries, pushing the yield on the U.S. 10-year Treasury note to new all-time lows.

Bad News is Bad; Uncertainty is Worse


Last month we discussed COVID-19, focusing on the prevailing comparisons to other historical disease outbreaks making rounds in the news. Since then, the disease has spread, creating new hotspots in South Korea, Iran, Italy and now the U.S. Positive signs can be seen outside of China where new Coronavirus cases have begun declining and employers are responding by slowly moving back to normal operations. China’s benchmark Shanghai Stock Exchange, the SSE Composite, has reacted by increasing in February. It is hopeful that stocks in the U.S. and elsewhere will recover similarly to China as has been the case for previous outbreaks as shown in the graph of our last coronavirus outbreak (SARS) highlighted last month, but as always we will respond to the trends that are revealed.



Current events also highlight yet again the phenomenal differences between bad news and uncertainty. Fascinating studies on the neuroscience around uncertainty have found that stress peaks not when negative consequences are predictable, but rather when uncertainty (whether consequences are bad or good) is at its highest. This means that even if markets have the same probability to increase from here as decrease, stress is likely higher among investors than if you could tell them with certainty the market was going to fall another 10%. The uncertainty, not necessarily the outcome, frequently causes the stress.

This characteristic of both people and markets is exactly what motivates Spartan to focus on the creation of investor-friendly goal-friendly strategies that always have a plan for handling uncertainty. Our belief is that one of our greatest value-adds for clients is being able to look you in the eyes during uncertain markets and declare, “This is what is happening and this is how we will respond – the plan is set and is already in motion.” Having a plan directly addresses where clients’ stress levels are highest and while no one can predict or ensure certain outcomes, we can do what’s possible to tilt the odds in your favor.

Creating a measure of certainty, by having a predetermined plan, can serve to calm nerves and keep you focused on your long-term goals. It can be compared to a fire drill or evacuation plan – by visualizing negative outcomes and developing a series of response steps, we can better give confidence and reduce fear. This, in short, is one powerful aspect of partnering with Spartan.


Please feel free to call or email us for additional details. We would be happy to discuss our take on the current environment with you in greater detail.


Best,

David Childs, Ira Ross, Blaise Stevens, and Eric Warren

Spartan Planning







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