3 Historic Opportunities in the Midst of the Current Crisis
By: Allie Schmidt, Financial Advisor, CFP®, CPA
Albert Einstein once said, “In the midst of every crisis, lies great opportunity.” As you’ve probably noticed over the past 13 weeks (yes it’s been 13 weeks!) since the market set its all-time high on February 19th and COVID-19 really came into focus, we’ve blogged and vlogged all about our process to manage the market volatility. We have been busy rebalancing portfolios, performing Roth conversions, and doing tax loss harvesting to take advantage of the market declines within the portfolios we manage, but there are a of couple additional opportunities out there that we thought were worth mentioning for cash and financial measures outside of your HDWS investments.
1. Mortgage rates
Just when you thought you locked in the best mortgage rate of your lifetime…rates go lower. Mortgage rates have hit levels never seen before, with the 30-year mortgage rate (I:US30YMR) hitting 3.23%* as of April, compared to the previous low set in November of 2012 at 3.32%*. I’ve looked at refinances with clients for 30-year fixed rates even lower. So, even if you’ve recently refinanced, it may make sense to take another look—who knows how long this historic opportunity will last?
2. Opportunity in Stocks
You may be spending less and have cash built up in your savings account…what to do with the extra cash? The markets have moved incredibly fast and a historic shift happened at the end of March. According to BlackRock, as of 3.31.20 bonds outperformed stocks over the previous 20 year period for only the 3rd time since 1926 (the previous 2 being 9.30.49 & 2.28.2009)^. The chart below shows the following 5 and 10 year returns in each asset class after such a historic environment.
Now, you may be saying, well the market has recovered some since 3.31, when the Dow Jones Industrial Average (DJI) was down 25.83%* compared to “just” 18.09%* as of yesterday’s (5.19) close. Very true, however, a near 8% rebound from the 3.31 level would be just the tip of the iceberg, so to speak, for potential return if the next 5 and 10 year periods mimicked the periods following 1949 and 2009.
Additionally, for long-term investment dollars, compare the potential stock returns to the 10-year treasury bond (I:10YTCMR), which also set a record-low of its own on March 9th, 2020 yielding 0.54%*, and yesterday still well below 1% at 0.70%*. We’d argue that the current historically low interest rate environment presents its own set of inherent risks (i.e., not keeping up with inflation) for long-term savings and retirement income needs. There is absolutely a place for bonds and cash in every person’s portfolio, which should remain no matter how low rates go, however, one could argue the data would suggest to avoid overweighting these positions at these rates…something to consider.
3. New car purchase programs
The COVID spread has brought a lot of industries to a screeching halt, car buying being one of them, so a lot of the major automakers are making financing a new car purchase appealing. If you’re in the market for a new vehicle and are planning on financing, this might be your time. According to Car and Driver, GM Financial, for example, is offering 0% financing for 84 months…that’s 7 years! Now, a new car is a costly adventure even with 0% financing, but if you’re in the market, probably worth taking a look.
We have a long way to go from an economic, market, and certainly viral perspective. There are changes that are taking place across a number of sectors especially where interest rates are in play, so keep an eye out for opportunities available to you on the liability side of your personal balance sheet. As always, these opportunities or any others should always be considered within a broader personal financial plan.
*Data obtained for the referenced index from ycharts.com
^Sources: BlackRock: Morningstar as of 3/31/20 U.S. stocks are represented by the S&P 500 Index and the IA SBBI US LrgStock Tr USD Index, an unmanaged index that is generally considered representative of the U.S. stock market. Index performance is for illustrative purposes only. U.S. Bonds represented by the Blbg Barc US Ago Bond Index and the IA SBBI US IT Gov Index, an unmanaged index that is generally considered representative of the U.S. bond market. It is not possible to invest directly in an index. Past performance does not guarantee or indicate future results. Indicates principal return, dividends not included.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
