What’s Happening?

The world’s stock markets have been very volatile in the 4th quarter as investors become more concerned that a trade war will break out between the US and China.  The 90-day truce called at the recent G20 meeting was followed by tweets from the President that seemed to indicate he was still committed to tariffs.  That was followed by the arrest of the CFO of Huawei, a Chinese tech company that makes smartphones and telecommunications equipment.  All of which stokes greater concern that the trade war may continue.  The US and China are the two largest economies in the world, so a trade war between the two could have ripple effects throughout the global economy.  It remains to be seen whether this is simply posturing before a trade deal is made or something with longer term effects.

Meanwhile, this has caused the stock market indices to decline significantly from their highs over the last few months:


Dow                        =            – 8.5%

S&P 500                =            – 10.20%

Nasdaq                 =            – 14.01%


The good news is your diversified portfolio likely has an allocation of anywhere between 25% to 75% in conservative bonds depending on your risk level.  The bond market has responded very positively to the recent stock market decline and is up 1.30% over the last month, as measured by Vanguard Total Bond Market (VBTLX).  The US 10-year treasury yield has dropped from a high of 3.238% down to 2.88% as of today.  That is a big move in the bond world.  This is one of many reasons we own bonds, to help cushion the decline when stocks drop.

What should an investor be thinking about during a time like this?

  • Keep in mind that the bond portion of your portfolio can be leaned on for withdrawals while we wait for stocks to recover. This is all within the context of the financial plan we created for you.  This is another reminder of why planning is so important.
  • Try not to look at your accounts every day. This adds unnecessary stress and provides no benefit.  You are not investing day-to-day, you are investing over the rest of your lifetime, which can be many decades.
  • Remember that 2016 and 2017 were great years for the stock market. If you were invested over those years, then the recent decline is giving back some of your profits, but still a long way from losing principal.
  • Trying to time the market is impossible. There will always be so called experts making predictions that sound smart.  Some of them will be right and some of them will be wrong.  The ones who are right this year have probably been wrong plenty of other times.  No one can reliably predict the outcome of the stock market over the short term.

What is Level doing to take advantage of the volatile markets?

  • We are taking advantage of any tax losses in your non-retirement accounts so you will save money on taxes.
  • We have dividends go to cash for virtually all client accounts, with a few exceptions. We can use this cash for your withdrawals without having to sell anything (depending on the size of the withdrawal).
  • If you don’t need any withdrawals, this cash allows us to take advantage of these stock prices by buying low.
  • If your portfolio gets far enough out of balance, we will place trades to get it back in balance. This could involve selling a portion of the bonds that are overweight and taking advantage of lower stock prices.

It is always difficult to watch your portfolio decline.  It can make you feel out of control and nervous about your financial future.  We aim to be a trusted voice that you can lean on during these moments.  Let us provide perspective on your situation so you can feel more confident that you are on the right track. Please don’t hesitate to call, email or schedule a meeting with us if you have concerns about your financial future.

Steven Elwell, CFP®
Partner and Vice President


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