Notes from our December 19th Investment Committee Meeting

December 19, 2018
Bond&Devick Investment Committee Meeting Notes

•    As of our meeting on Wednesday afternoon, the S&P 500 stock index was down approximately 15% for the quarter and 10% for the month of December.  According to CNN Business, during the trading day on December 20th the Nasdaq index was trading in bear territory (down 20% from its recent highs), joining US small cap stocks, emerging market stocks and commodities.
•    We have been communicating with our clients for quite some time that we were overdue for a correction of 20% or more.  On average, the S&P 500 experiences declines of 20% or more every 2 ½ years or so and it has been about 7 ½ years since the last bear market.
•    The fact that we were anticipating the correction does not make it any easier to go through especially since media coverage tends to be overly dramatic and hyperbolic.  A person retiring this year at age 62 will participate in approximately seven or more bear markets over the course of their retirement.  While each correction is different, the best course of action is to make sure that you are comfortable with your level of risk and asset allocation BEFORE a market downturn, as selling after stocks have declined is not how investors make money over the long run.
•    The committee believes international stocks continue to be attractive as their valuations relative to the S&P 500 are very wide based on historical norms.  Our models still call for an overweight in international stocks and no changes were made to this outlook.
•    Rising interest rates, global trade tensions, slowing global growth and now a possible government shut down are all a lot by themselves, but when you throw them all together it makes for a very volatile market. In 2019 we are more concerned with credit risk and less worried about interest rate risk, which means we have and will continue to increase portfolio exposure to bonds with higher credit quality and slightly increase bond duration as well.  
•    A few clients have called wondering if this is a good time to add to stocks.  This is a case by case decision depending on a client’s situation.  We utilize a few different institutional resources with regards to deciding when it might be appropriate to add to stocks during deep corrections.  At this point we have held off on rebalancing the models, however the more stocks go down the safer they become and the more comfortable we will be making asset allocation shifts into stocks.  Using stock market volatility in your favor by selling stocks to cover distributions during good times and adding to stocks when they are down is one way to put the odds of long-term investment success in your favor.  
Again, we appreciate the fact that going through market volatility is never pleasant and can cause uneasiness.  We encourage you to call our office at any time to talk about your situation. We strongly believe balanced, diversified portfolios stand the test of time and we will continue to monitor the markets and your investments closely.

The Bond&Devick Investment Committee
RJ, Andy, Rob and Brittany