By now, you are undoubtedly aware of the coronavirus. The virus’s rapid spread has caused mass panic, and the impact on financial markets is secondary (tertiary? quaternary?) to the fact that people are sick and dying. My prayers are with everyone affected by the virus, especially those who are suffering, whose loved ones are sick, and those living in fear. I’m far from an expert in this field – obviously – but I trust that the world’s best scientists are working on a cure, and I believe that their efforts will succeed. That said, the havoc that the coronavirus is wreaking on financial markets has given me a chance to make some changes in my own portfolio.
The majority of my investments are in my 401(k). That account is and always has been 100% invested in stocks. It’s invested exactly like any Truepoint client with a 100% stock allocation because I believe it’s essential for advisors to “eat their own cooking,” and I don’t think I could construct a better portfolio. Stocks have the highest expected return for the long-run, and I have a time horizon that will allow me to ride out any market hiccups along the way. In times like this, I wish I had a sliver allocated to bonds. When stocks fall, I’d be able to rebalance my account by selling bonds and buying stocks. Still, I think the 100/0 (stock/bond) allocation will give me the highest returns between now and retirement.
A couple of years ago, I started funding an HSA. My Fidelity HSA allows me to invest, which is great because of the triple tax benefits (tax deferral on contributions, tax-free growth, and tax-free withdrawals for medical expenses in retirement). This account is also 100% invested in stocks because I don’t plan on using the money for decades. Even if I have a medical expense now, I won’t use the HSA dollars because of the Munger rule: “The first rule of compounding is never to interrupt it unnecessarily.” I’ll let that account grow as large as possible to take care of the inevitable medical expenses that accompany old age.
The 401k and HSA contributions are entirely automated through payroll. I got paid last Friday and automatically “bought the dip” in those accounts.
When we married in August 2018, my wife and I were trying to figure out our joint financial goals. Our immediate priorities were to build up an emergency fund (in a high-yield savings account) and pay off student loans. While these goals took some time, discipline, and patience to reach, we eventually saved enough to cover necessary living expenses in case of an emergency like one of us losing our jobs. Some people would advise against paying off student loans early, but I don’t think paying off debt is ever a bad idea. After accomplishing those goals, we had some extra monthly cash flow. We wanted to put that to work in the markets but didn’t have a good handle on our combined annual spending. I never want to take a lot of market risk with the money I might need in the short-term, so we opened a conservative 40/60 portfolio with RhineVest. Our thought was that if we needed a significant car repair or wanted to splurge on a vacation, we could dip into that account. One-and-a-half years into married life, we’ve still not touched that money. The beauty of RhineVest is that it automates the deposits, rebalancing, and tax-loss harvesting, so I have barely given that account any thought until recently. I’m confident now that we’d be able to handle an unexpected expense without using these funds, so I’ve used this market correction as an opportunity to take more risk with that account. The new allocation is 100/0.
We also have a conservative account with RhineVest to help us save for a down payment. I’m not making any changes in this account because, again, I don’t want to take much market risk with dollars we will need in a few years.
I thought strongly about dipping into the emergency fund to open an IRA. All my 401(k) dollars are Roth, so I could open a traditional IRA to save a little more for retirement while getting a tax deferral. As tempting as that idea was, within the next few months, we’ll be moving and having our first baby. With the move and little nugget on the way, I decided against it. It’ll be an expensive few months (years?), and I don’t want to approach these milestones with a depleted savings account.
All these decisions are personal to my situation, and they may not even be entirely “correct” decisions. That’s okay, because the key to personal finance isn’t perfection, but rather to develop and maintain a plan that works for you. Remember, without a crystal ball; perfection is unattainable. My decisions aren’t applicable for everyone, but the overall theme is – keep a big-picture perspective and focus on taking advantage of down markets. Panic selling during a market correction is a surefire way to hurt your financial situation. Talk to your advisor about what you can do to capitalize on market weakness, and remember, being a good investor is all about having the right mindset.
Disclaimer: Truepoint Wealth Counsel is a fee-only Registered Investment Adviser (RIA). Registration as an adviser does not connote a specific level of skill or training. More detail, including forms ADV Part 2A & Form CRS filed with the SEC, can be found at TruepointWealth.com. Neither the information, nor any opinion expressed, is to be construed as personalized investment, tax or legal advice.