Mar 13, 2020

PFG’s Investment Guide to the Coronavirus

Written By: Nate Williams


Dimensional Fund Advisors (DFA), who manages most of our clients’ money (including our own), recently released this article relating to COVID-19. I recommend you read it: The Corona Virus and Market Declines

For years I have been advising clients to do the following with regard to their investments:

  1. Focus on investing as much as you can.
  2. Pray that the markets go down – another 2008 would be best.

When it comes to #2, I get weird looks and snickers implying that I’m joking. I’m not. Unless you’re going to market to sell, market declines are the best indicator of future returns, and they are your friend. This isn’t my opinion or some contrarian perspective. It’s math.

What is the long-term plan?

Most people have been conditioned to think (or lack thinking) that the plan for retirement is to invest in the market, cross your fingers and hope values go up, then to sell on your 65th birthday and to write a check for retirement. But for you, doctor, this is not the plan. For you the plan is to buy, then hold—possibly forever—living on the dividends from the investments. In other words, the goal is to build a passive income stream that will replace you as the income earner for your family.

Therefore, your goal is to maximize dividends earned in retirement. Here is the equation for that:

Dividends Earned  =  # Shares Owned  x  Dividends Paid Per Share*

*Or to figure your total economic benefit, you could substitute “Earnings Per Share.”

For practical purposes, I assume that “dividends paid per share” is out of your control (unless you own and operate the company, or are the chairman of the board of directors, it is out of your control). As such, I recommend that you ignore this part of the equation and focus instead on the part you can control: the “# of shares owned”. In short, your goal as an investor is to acquire as many shares as possible.

If acquiring more shares is your goal (and it is), you would be wise to understand the math equation that governs the accumulation of shares, which is this:

# of Shares  =  Dollars Invested  /  Price Per Share

Therefore, the number of shares you own increases as you: 1) invest more money and 2) the cost of the investments drop. For this reason, we have given the same advice for years:

  1. Focus on investing as much as you can.
  2. Pray that the markets go down – another 2008 would be best.


What about the Coronavirus?

I am not a health professional, nor a Coronavirus expert. Many people believe the Coronavirus to be a big deal, and therefore have called it a Pandemic, taking drastic measures to stop it (like shutting down the beloved NCAA Basketball Tournament). Others think it’s over-hyped and highly politicized, and just another irrational news-feeding frenzy. As for me, I don’t know, time will tell. I’ll do what I can to help myself and the people I know to not get sick and we’ll move on with life.

It is possible, even likely, that the virus will slow down the economy. It is possible that you’ll see a downturn in patients in your office. It’s possible that you could get sick – that would really slow down your economy.

I have two living grandmothers, both over the age of 85. From what I read, they are easy prey for this virus. I am close with both of these women; both have had a huge impact on my life and losing them, whenever it happens, will be a sad, sad day for me.

So when it comes to the Coronavirus, we don’t know what will happen. I am not trying to make predictions on the severity of the virus’s impact. What I am saying (hopefully very loud and clear) is that as stock prices fall, the opportunity for future investment returns goes up! What then should you do with your investments? If possible, stay the course! If you can, stick to your financial plan. If you do, the likelihood that you’ll be rewarded long-term is very high.

Should I invest more?

We always recommend letting your personal financial plan dictate the decision to invest. Yes, we recommend investing for those who have money and can afford to do so. But we don’t recommend getting into the investment timing business; nor do we recommend pulling money your plan indicates that you shouldn’t invest in effort to time the market low. For example, we don’t recommend you invest your emergency fund, nor do we recommend you borrow money to invest. If you have questions about whether or not you should alter your investment plan, contact your advisor to discuss.

Should you stop investing to keep more cash on hand?

We always recommend our clients have sufficient working capital on hand. We also recommend at least three, but usually six or more months of living expenses in an emergency fund. If you have done those things as advised, you should be capable of weathering most storms. If you don’t have enough working capital or emergency reserves then yes, you should take some action now to prepare yourself by doing these things:

  • Look first at what you’re spending at home and cut where you can. Let your advisor know if you can temporarily cut your take-home pay. If you have no ability to cut your spending at home in an emergency, that is a problem.
  • If needed, we can also cut investment contributions (although far from ideal) and tax withholdings. If you see a slow-down in your practice, you’ll immediately begin to save taxes and we can therefore cut what you’re withholding.
  • If you’re making additional debt payments as part of your surplus plan, consider holding off on making those payments and holding the cash instead. It is a lot easier to pay the bank later than to need money and go asking for it back.

We wish you the very best and God’s richest blessings upon you as you weather this and the many other storms of life. And we’re here to help in any way we can. If you have any questions, please contact us.

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