The Compass Newsletter: Spring 2020

The Compass A QUARTERLY NEWSLETTER BY SCREAMING EAGLE WEALTH MANAGEMENT // SPRING 2020

erik dullenkopf | wealth manager | certified financial plannerâ„¢ professional ca insurance license #0F97513

We wanted to get a second quarter Compass out to you promptly given recent global events. This edition is dedicated to providing resources to endure the health, social and economic crisis that COVID-19 has thrown us into.

passed providing trillions of dollars in aid to healthcare funding, unemployment insurance, business loans, paid sick leave, tax credits and cash payments to qualifying citizens. For the financial markets, Fed Chairman Powell has said they “will do everything in it’s power” to help stabilize the markets. So far, this has included slashing the Federal Funds rate to near zero, committing to unlimited bond purchases and opening several new lending facilities to keep credit flowing to households and business. There are likely even more tailwinds to be implemented in the coming months.

It has been a busy month+ here as we have been proactively reaching out to all of our client families. By now, we are all doing our best to stay home and practice “social distancing” in an effort to “flatten the curve” avoiding overwhelming our healthcare system. This unprecedented movement has inevitably caused a quick and drastic slowdown in our economy, of which the true impacts are still to be seen. Leading the economic impacts has been a significant pullback in global equity markets.

The difference between now and the start of the pandemic is that we can at least see the end. We can see that we have flattened the curve, and we can reasonably project when the pandemic will be brought under control. We are not at that point yet, but at least we can see it. And that is a very positive takeaway from the data thus far.

Our goal is to provide a listening ear to any potential anxieties, but also provide guidance, understanding and comfort. Hopefully, our more frequent email updates have been valuable in this effort too. In addition, we have been using GoToMeeting video conferencing as a tool to stay connected.

There is some good news indicating the end may be in sight. Right now, the metric that signals whether things are getting better or worse is how quickly, in percentage terms, the COVID-19 cases are growing. Currently growth rates around the world are now at or below 10%, compared to 15% a week ago and 30% a couple of weeks ago. Other trends are positive as well. After a slow start, testing for the virus is now around 150,000 per day. Last but not least, the Milken Institute is currently tracking an astounding 116 treatments and 79 vaccinations currently in the development to combat the virus. https://milkeninstitute.org/covid-19-tracker

Many of our clients are elated that their children or other family members have come home to “shelter in place.” Some have found this a good time to open a small investment account for their loved ones to encourage investing for the future and financial education. I am pleased to report that a significant majority are feeling quite optimistic about their ability, and our country’s, to make it through this in the near future.

To our clients, most of you have likely completed your 2019 taxes. Please complete, sign and return the enclosed Authorization Form, allowing us to get copies of your completed tax documents directly from your accountant.

The takeaway from the data so far is that we have made meaningful progress in controlling the virus: we know what to do, we are doing it, and it is working. We are, however, only about halfway through the process at best.

If current trends persist, we are still several weeks away or more from seeing new infections drop to zero.

Should any of you want to share this Compass with any of your friends, family or colleagues, you can find it on our website. Stay safe & healthy!

Our government and the Federal Reserve, our central bank, have taken unprecedented moves to provide a life raft to the other side. Countless businesses have been forced to close their doors and workers told to stay home for the foreseeable future. So far, three relief bills have 2

WEATHERIN G THE STO R M Reflecting on the many recent client conversations I realize that it is important in times like these to appreciate the preparation done to prepare for this “storm.” As you know, one must do the good work preparing for a coming storm before it arrives (and we know one will someday), even if you don’t know when or how severe. Although every client’s financial picture and goals are very different, we can still highlight the common steps taken to fortify our clients’ custom financial plans. These are the results of much time and numerous meetings over the years working alongside our clients.

turning on other dormant sources of income, like Social Security, pensions or annuities. The last resort would be to temporarily reduce withdrawls from the investment account.

Moving forward, we all need to remember that there are things that we can control, and things we cannot.

As Warren Buffet once said, “Be fearful when others are greedy and greedy when others are fearful.” This crisis and accompanying bear market does provide for some opportunity. For some those may include one of the following:

Financial Planning. This is an ongoing process, not one act, looking at the big picture and evaluating if your current financial path is likely to get you to your desired destination. Throughout this process clients have made smart decisions that has laid a firm financial foundation and afforded them to live within their means.

Portfolio Construction. Done appropriately will consider one’s current risk/return preference and amount of time until it is used to fund its goal. It will be built for the long term, not gambling, and will consist of time tested products. The result is a collection of investments that work together as a whole to provide for reliable growth.

Communication. This goes both ways to ensure correct perspective, realistic expectations and to foster education. The actions above cannot be accomplished without frequent, open exchanges of thoughts & feelings.

For many of our clients who are already retired, continuing to fund their monthly income needs is a priority. Having to sell investments after they have decreased in value, especially early in retirement, can have a negative impact on long term portfolio balances.

However, for many, there is comfort in knowing that much of their monthly income needs are satisfied by the dividends and interest their investments produce.

Unless this becomes a significantly protracted bear market then the amount of investments that need to be liquidated could be small. Thereby allowing the same amount of shares to rebound afterwards. However, should markets stay depressed for the longer term, often times the impact to a portfolio can be lessened by

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Tax loss harvesting / in non-retirement accounts, assets can be sold at a loss and be used to offset gains in the future

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Roth Conversion / transfer assets at a depressed value from your pre-tax IRA, pay income taxes on that amount, deposit them into your Roth IRA and let the assets appreciate tax free there.

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Dividend reinvestment / Let the dividends or interest earned by your investments reinvest to by more of those investments at these lower prices.

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Invest surplus cash / if you have cash savings surplus to your emergency fund needs and can set aside for the long term, buy investments now at lower prices.

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Rebalance / Over time some of your investments will grow faster than others. Sell some of the investments that did well recently and buy back into the ones that didn’t. You will effectively be buying low and selling high.

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401(k) contributions / If employed and cash flow still allows, continue to contribute to your retirement plan.

Remember that when the stock market is “bad” it is often a “good” time to buy!

“Uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security.”

John Allen Paulos

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HOW TO HANDLE MARKET DECLINES Smart investing can overcome the power of emotion by focusing on relevant research, solid data and proven strategies.

YOU WOULDN’T BE HUMAN IF YOU DIDNT FEAR LOSS. Nobel Prize-winning psychologist Daniel Kahneman demonstrated this with his loss aversion theory, showing that people feel the pain of losing money more than they enjoy gains. The natural instinct is to flee the market when it starts to plummet, just as greed prompts people to jump back in when stocks are skyrocketing. Both can have negative impacts.

But smart investing can overcome the power of emotion by focusing on relevant research, solid data and proven strategies. Here are seven principles that can help fight the urge to make emotional decisions in times of market turmoil.

2. Time in the market matters, not market timing 1. Market declines are part of investing Stocks have risen steadily for most of the last decade, but history tells us that stock market declines are an inevitable part of investing.

The good news is that corrections (defined as 10% or more decline), bear markets (an extended 20% or more decline) and other challenging patches haven’t lasted forever.

No one can accurately predict short-term market moves, and investors who sit on the sidelines risk losing out on periods of meaningful price appreciation that follow downturns.

The Standard & Poor’s 500 Composite Index has typically dipped at least 10% about once a year, and 20% or more about every six years, according to data from 1950 to 2019. While past results are not predictive of future results, each downturn as been followed by a recovery and a new market high.

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appreciation that follow downturns.

Every S&P 500 decline of 15% or more from 1929 through 2019, has been followed by a recovery. The average return in the first year after each of these declines was 54%. behavioral economics. Recognizing behaviors like anchoring, confirmation bias and availability bias may help investors identify potential mistakes before they make them.

Even missing out on just a few trading days can take a toll. A hypothetical investment of $1,000 in the S&P 500 made in 2010 would have grown to more than $2,800 by the end of 2019. But if an investor missed

4. Make a plan and stick to it Creating and adhering to a thoughtfuly constructed investment plan is another way to avoid making short-sighted investment decisions - particularly when markets move lower. The plan should take into account a number of factors, including risk tolerance and short & long-term goals.

One way to avoid futile attempts to time the market is with dollar coast averaging, where a fixed amount of money is invested at regular intervals, regardless of market ups and downs. This approach creates a strategy in which more shares are purchased at lower prices and fewer shares are purchased at higher prices.

Over time investors pay less, on average, per share.

Regular investing does not ensure a profit or protect against loss. Investors should consider their willingness to keep investing when share prices are declining.

just the 10 best trading days during that period, he or she would have ended up with 33% less.

3. Emotional investing can be hazardous Kahenman won his Nobel Prize in 2002 for his work in behavioral economics, a field that investigates how individuals make financial decisions. A key finding of behavioral economists is that people often act irrationally when making such choices.

Retirement plans, to which investors make automatic contributions with every paycheck, are a prime example of dollar cost averaging.

Emotional reactions to market events are perfectly normal.

Investors should expect to feel nervous when markets decline, but it’s the actions taken durin gsuch periods that can mean the difference between investment success and shortfall.

One way to encourage rational investment decision-making is to understand the fundamentals of 5

5. Diversification matters A diversified portfolio doesn’t guarantee profits or provide assurances that investments won’t decrease in value, but it does help lower risk. By spreading investments across a variety of asset classes, investors can buffer the effects of volatility on their portfolios. Overall returns won’t reach the highest highs of any single investment - but they won’t hit the lowest lows either.

For investors who want to avoid some of the stress of downturns, diversification can help lower volatility.

6. Fixed income can help bring balance Stocks are important building blocks of a diversified portfolio, but bonds can provide an essential counterbalance. That’s because bonds typically have low correlation to the stock market, meaning they have tended to zig when the stock market zagged.

What’s more, bonds with a low equity correlation can potentially help soften the impact of stock market losses on your overall portfolio.

Funds providing this diversification can help create durable portfolios,

Standard & Poor’s 500 Composite Index is a market capitalization-weighted index based on the results of approximately 500 widely held common stocks. The S&P 500 Composite Index (“Index”) is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Capital Group. Copyright © 2020 S&P Dow Jones Indices LLC, a division of S&P Global, and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. MSCI does not approve, review or produce reports published on this site, makes no express or implied warranties or representations and is not liable whatsoever for any data represented. You may not redistribute MSCI data or use it as a basis for other indices or investment products. Bloomberg® is a trademark of Bloomberg Finance L.P. (collectively with its affiliates, “Bloomberg”).

Barclays® is a trademark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Neither Bloomberg nor Barclays approves or endorses this material, guarantees the accuracy or completeness of any information herein and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation. This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice. All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies. American Funds Distributors, Inc., member FINRA. Lit. No. MFGEBR-126-0320O CGD/9074-S76494 © 2020 Capital Group. All rights reserved.

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and investors should seek bond funds with strong track records of positive returns through a variety of markets.

Through bonds may not be able to match the growth potential of stocks, they have often shown resilience in past equity declines. For example, U.S. core bonds were flat or positive in five of the last six corrections.

7. The market tends to reward long-term investors Is it reasonable to expect 30% returns every year? Of course not. And if stocks have moved lower in recent weeks, you shouldn’t expect that to be the start of a long-term trend, either. Behavioral

Those investors who can tune out he news and focus on their long-term goals are better positioned to plot out a wise investment strategy.

It’s always important to maintain a longterm perspective, but especially when markets are declining. Although stocks rise and fall in the short term, they’ve tended to reward investors over longer periods of time.

Even including downturns, the S&P 500’s average annual return over all 10year periods from 1937 to 2019 was 10.47%.

It’s natural for emotions to bubble up during periods of volatility. Those investors who can tune out the news and focus on their long-term goals are better positioned to plot out a wise investment strategy.

economics tells us recent events carry an outsized influence on our perceptions and decisions.

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PR E S E R VI N G YO U R M E N TA L H E A LT H The challenges we face today are unique and significant. The coronavirus has unleashed uncertainty, economic pain and shelter-in-place for much of the population. Any one of those alone can impact our mental health: the combination of all three can wreak havoc on us.

that may be helpful:

It is completely normal to experience feelings of loneliness, fear and anxiety during these unprecedented times. We may not be able to control the initial feelings, but we control our internal dialogue. What we tell ourselves and what actions we take can either alleviate or intensify the negative feelings.

• Perform an act of service for someone else

We protect our mental health by focusing on things we can control. There is no sense worrying incessantly about those things we cannot control.

We accept our situation as fact and figure out what we can do to make the most of the situation. Finding joy isn’t so much about our circumstance as it is the actions we take.

Choosing to act, rather than be acted upon, supports a healthy mindset. I have including a list of actions

• Turn off / take a break from the news and social media • Continue your daily habits / routines to the extent you are able • Exercise, walk, stretch - get the blood flowing • Think purposely about today; accomplish something each day • Appreciate the simple things in life, count your blessings I included several actions that have to do with our individual self-care. Yet, one of the most powerful ways we can feel good is to forget ourselves and do something nice for someone else. Whether that is mailing a card, dropping off some cookies or just talking with someone and lifting their spirits. For some reason whenever we serve another person we are usually the ones that benefit the most.

Stay healthy - both physically and mentally! ©2020 The Behavioral Finance Network. Used with Permission

CLIENT QUARANTINE

#SELFIES Screaming Eagle Wealth Management P: 805.643.7700

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305 S. Kalorama Street, Suite F, Ventura, CA 93001 E: erik@screamingeaglewm.com | W: www.screamingeaglewm.com

Erik P. Dullenkopf, CFP® (CA Insurance license #0F97513) is a Registered Representative and Investment Adviser Representative with/and offers securities and advisory services through Commonwealth Financial Network®, member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency or Screaming Eagle Wealth Management.