Before embarking on a journey, every ship’s captain is legally responsible for developing a voyage plan. A proper voyage plan is prepared by the captain or an experienced crew member and maps out each segment of the journey as well as possible hazards and steps to take if they occur. The plan allows for prudent execution, monitoring, and adjustments to address any crisis and adapt in case of an unexpected twist or turn, such as encountering mechanical difficulty or a massive storm. With a nod to the importance of voyage plans, I want to update you on RegentAtlantic’s plan for navigating the COVID-19 crisis and helping our clients through this volatile time.
Navigating the COVID-19 Crisis – Our Approach
Our approach has four steps:
- Realign portfolios
- Exercise patience and attention to detail
- Rebalance portfolios back to policy
- Monitor and adjust
We believe that we have some time to go before we can see the worst ahead. While we are being patient before rebalancing, we are also analyzing current conditions and asset classes, as well as modeling the best paths forward under a variety of scenarios. As a result of this analysis, we will be changing our asset allocation to favor more large company high-quality U.S. stocks. Generally, we will look for investments in companies that have low debt levels and high growth rates, and which are less sensitive to economic shifts. We believe these attributes will put companies in a better position to weather the COVID-19 crisis.
Stock allocations in developed international countries and emerging markets will be trimmed to make way for increased U.S. stock allocations. We believe foreign stocks continue to be an important part of well-diversified portfolios, and as such, we are only trimming the allocation. In our view, these investments offer good return potential and a different pattern of returns, which reduces risk.
As a result of changes in the tax code, the ownership structure of infrastructure like oil and gas pipelines is changing. So, we will be eliminating investments in that asset class and reallocating those investments to U.S. large company stocks. Overall, this asset class has been disappointing because it has correlated closer to the price of oil than we anticipated. We no longer believe infrastructure is a viable asset class.
Portfolio realignment will begin soon. When we realign, we will only reposition assets that are currently in stocks to other stock investments. We are not rebalancing or moving money from bonds into stocks. That will only occur when we rebalance the portfolio.
Patience and Attention
We are patiently waiting to rebalance portfolios, biding time until we see the indications that the worst of the storm is in sight. We have identified five different pandemic indicators that we are continuously monitoring. When we see enough improvement in the aggregate, we will rebalance portfolios. Markets are forward-looking and don’t need to see an all-clear signal; they will recover when investors are confident that the economy will rebound.
The economic impact of COVID-19 is much like a hurricane: It is powerful, dangerous, and temporary. Once this storm passes, some things may change, but the vast majority of our daily lives will return to normal.
At RegentAtlantic, we are long-term investors. We favor steady, strategic plans over market timing. We will continue to pursue our long-term policy and maintain each client’s course as best we can. Going to cash in a crisis is a dangerous maneuver because markets can be incredibly volatile; getting market timing wrong by a day or two can be disastrous. Two of the S&P 500’s 10 largest percentage loss days occurred in March 2020, while two of the 10 largest percentage gain days also occurred in the same month. In fact, it’s common for both large loss and gain days to occur during a financial crisis. Though it is tempting to sell everything when markets are chaotic, it is safer to remain invested according to your long-term plan.
One of the traditional ways to recoup portfolio value and get back on course is to rebalance portfolios back to policy allocations of stocks and bonds. As the stock market has declined much more than the bond market, rebalancing means selling some bonds to buy stocks. Rebalancing is a disciplined way of buying low and selling high.
Monitor and Adjust
Once we are past the eye of the COVID-19 storm, we still have some choppy waters to traverse. This will require careful monitoring of each asset class and investment. More adjustments will likely be necessary until we steer fully clear of the crisis.
Weathering the COVID-19 Crisis
Our experience navigating prior crises has given us what we believe is a well-crafted plan. We are grateful you trust RegentAtlantic to help you weather this storm.
We hope that you and your family are staying strong and safe during this time. Please contact your wealth advisor or me with any questions or concerns.
Important disclosure information
Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.
Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.
This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.
RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.