Market Drop - Good news for some, no change to plans for most

Ryan Roloff |

As of this moment (Thursday, 12pm), the Dow has now dropped over 3000 points from its high point last week, mainly due to heightened fears about the coronavirus "pandemic." I won't attempt to be an expert on contagious disease - but will tell you markets bounce up and down on news all the time. It's certainly nothing new. I'll share a few thoughts.

  1. First, please be aware that a 3000 point drop in the Dow "ain't what it used to be." If the Dow dropped 3000 points in the 1990's - it was at least a 20% drop in the market (depending on the year - well over 50% earlier in the decade). Today, it's been a drop of just over 10%. Far from immaterial - but nothing the markets haven't done regularly - almost every year (including the good years).
  2. For investors still saving - it's actually the best news you can hope for. If you are contributing to your 401k, IRA or other accounts - when the markets are down, you buy more shares. Assuming nothing changes about the long-term outlook (which I certainly don't expect) - you now have more shares that can appreciate - leaving you with more money if the shares end up at the same place 5, 10 or more years from now.
  3. Even for investors that are in retirement, or otherwise drawing from their accounts - it more than likely changes nothing about our plans. We generally invest in what can be described as a "bucket" approach. Think of it as investing in three buckets - Bucket #1 has very safe and liquid investments that are stable in almost any market condition. This is where we draw current cash needs from to meet withdrawals. Bucket #2 has low to medium risk investments that generally are fairly stable and/or bounce back pretty quickly. This money is what we use to sell to replenish Bucket #1 as needed - and generally covers 5-10 years’ worth of withdrawals. Bucket #3 is where the most aggressive investments lie - generally stocks and stock funds. Since we don't NEED to touch these funds for at least 5-10 years - the daily ups and downs generally have no effect on our withdrawal plans. Looking at historical performance of the markets - even the most severe market pullbacks have stabilized and recovered within 5-10 years. (Yes, there have been exceptions like the Great Depression, or Japan after its dizzying heights of the 1980's, but generally a good diversified portfolio has performed over time.).
  4. Market valuations are not nearly as overvalued as they were at times past like 2008 or 2000. There are a variety of ways to assess the value of stocks - and I won't attempt to teach you a full stock valuation methodology - other than to say I am well studied and stay abreast of current market conditions - and while we have had a long bull market - stock prices are still within reasonable historical ranges - especially when compared to investment alternatives (such as current bond and CD interest rates).
  5. Yes - there are ways to "protect" against market losses - but they generally do more harm than good. And yes - we have access to almost all of these vehicles and can use them as we see fit. The most common tools promoted to "participate" in market returns while protecting are fixed index (equity index) annuities1 , market participation CD's2 or notes, or buffered notes. All of these provide some or complete downside protection (with perhaps only credit risk in some cases - the risk that the insurance company or bond issuer can't pay their claims.) But in all cases - SOMETHING is given up. If you look at the history of the markets – the largest gains are often the immediate bounce back – well before things appear to be “all clear.” I can tell you from my 20+ years in the business – almost every time a client has panicked and not allowed me to talk reason to them – they have almost always made a decision to sell investments at a bad time – at or near the bottom of a downturn – and, in my opinion, remaining invested would have given them the best possible chance of recovering their losses. Even advisors and strategists that attempt to “manage risk” by timing downturns or using “protected investments,” from my experience, have by and large done more harm than good.

Personally – I can actually see this shock turning out to be very healthy for the markets. As Ryan R. Roloff, CFP®, ChFC®, CLU®, CMFC®, NSSA® Roloff Retirement Solutions, Inc. | President 7780 N. Fresno St. Ste. 101 Fresno, CA 93720 559-408-7439 | I’m sure you’ve heard – we are in a nearly uninterrupted 10-year bull market and economic expansion. Part of the reason it has been able to last so long without a major downturn is that the rate of expansion has been historically modest – not allowing for a lot of “irrational exuberance.” Having some more (short-term) concerns will inevitably cause some caution in spending and investment – and may allow for an even longer continuation of the overall positive economic growth and stock market returns.

So, all that said – if you absolutely cannot handle the increased volatility – I have options to reduce risk without getting completely out of the markets. I absolutely do not recommend these as necessary3 – and in my opinion, maintaining proper diversification based on your goals is a better option – but taking some risk off the table is certainly a better alternative than selling everything or taking all risk off the table (you can’t make good returns without risk!). If you’d like to talk about options for your situation – please let me know. If you’d just like to talk and go over how your portfolio is positioned to withstand short-term fluctuations – let me know as well. 


Ryan R. Roloff, CFP®, ChFC®, CLU®, CMFC®, NSSA® 


1. Index annuities are insurance contracts that, depending on the contract, may offer a guaranteed annual interest rate and some participation growth, if any, of a stock market index. Such contracts have substantial variation in terms, costs of guarantees and features and may cap participation or returns in significant ways. Any guarantees offered are backed by the financial strength of the insurance company, not an outside entity. Investors are cautioned to carefully review an index annuity for its features, costs, risks and how the variables are calculated. 

2. Bank certificate of deposits are insured by an agency of the Federal government and offer a fixed rate of return whereas both the principal and yield of investment securities will fluctuate with changes in market conditions. 

3. A diversified portfolio does not assure a profit or protect against loss in a declining market. 

 The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.