Two Ways to View the Coronavirus and Financial Markets

Unless you’ve had your head over the last couple of weeks, you’ve read the coronavirus is spreading. (If you have had your head buried in the sand, please tell me where, because I want an invite.)

You’ve probably also heard the headlines about the market crashing. I’ve seen some people reminding people not to look at their 401k plans. I see the market down about 12% from its highs and it is set to drop another couple percent today. For most people, especially if you are still contributing to 401k plans, not looking and staying the course is likely the best path foward. It’s a good time to buy in low since the markets have been up so much over the last few months.

Some of the people I’m talking to are doing something a little different. I’m doing something different too.

Last month, I wrote about how I’m managing stock market risk in 2020. Specifically, the stock market was hitting new highs almost every day. What a different a month makes! I was getting nervous that the Shiller P/E was high (around 34) and the markets were up 30% for the year. Since I still hope to be invested for decades of life, I didn’t want to exit the market even though it seemed risky. I thought the market seemed risky back in 2015, so staying invested is important.

I decided to manage risk by selling some international stocks and using the money to buy bonds. That has been very helpful this week. The bonds have been holding up very well while the rest of the market goes down. I also sold off half of my diversified VTI total stock market index and bought HDV, a high dividend ETF. That didn’t work so well as HDV has been hit just like the general stock market. At least I’ll get a dividend check to buy at these reduced levels.

With the market down 10% in such a short time, I took the opportunity yesterday to sell a little of those bonds and buy in. It wasn’t much, but it was enough to make me feel better about the down market. I also bought oil (Ticker: USO). It’s down 30% from its highs. Long term I’m more interested in solar, but oil was just too cheap for me to ignore.

The market continued to go down yesterday and today it’s looking like it’s going to be around 15% off its highs. I’m debating about cashing in some of those bonds and buying again. If I liked a 10% off sale, a 15% off is even better, right? Well, I can only sell off bonds for so long. I have only about 12% of my portfolio in them. I was thinking about selling off 2% or 3% at a time, so I can buy in 4 or 5 times if things continue to drop.

In market times like these, I find it’s best to focus on accumulating shares of indexes and companies. If you focus on the money you’ve lost, you’ll probably be sad. If you look at it as your money buying more shares, you’ll feel better. I was paying $170 for a share of VTI not too long ago, and now I’m paying $150. I am able to get more shares. Over the long run of a decades, more shares is going to equal more wealth.

Of course the big tragedy here is not related to the financial markets at all. It’s the people who are getting sick. I wish I could something about that and I feel a guilty about “profiting” (accumulating shares at lower prices, but I am definitely losing money like most everyone) from such a terrible circumstance. At some level, I just have to focus on controlling what (little) I can control and remembering that I write a financial blog. It’s okay to write about financial things at a time like this, because that matters too, right?