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Financial Markets and COVID-19 Q&A Transcript

0:00 Thanks for joining this call to review what’s going on in the financial markets, and how it impacts you as an investor. My name is Darryl, I am a CFA Charterholder and I’m the Director of Portfolio Strategies here at Spring. Just to let you know, this meeting is being recorded so we’re going to post it a little bit later, in case you want to access it and just check back in on anything that you’ve heard. 

0:29 We created this call just naturally out of the inquiries we’ve been receiving from clients who are looking for a little bit more help in understanding what’s going on. We wanted to create this space that was away from the majority –  you know – the usual financial media that we are all used to. It’s loaded with a lot of general information but is really short on insight. So hopefully in the next 15 minutes or so I can provide a little more insight for you.  

0:59 Not in terms of what to do next, specifically if you have investments, but really how to think about the information you’re hearing relative to your own financial objectives and how to make those decisions, taking into consideration everything that’s going on. So we’re going to take a look back at what happened last week, what’s been going on this week, because it’s a lot; it literally feels like a yo-yo. We’re going to talk about things within the context of whether you are with a Roboadvisor, with an investment manager, whether you are a DIYer or if you are sitting in cash wondering what the heck to do. Finally if you have any questions please send them. I’m going to be answering them. If you want to post them to me now, anonymously, just in the little chat dialog box you can select my name, Darryl, to send any questions there. So I’ll receive them and I can answer them there. With that out of the way, let’s talk about what’s been happening.

2:00 Let’s go back to last week, where we started off the week on Monday and Tuesday, and we thought things were fairly bad then, where the markets had fallen in six and a half to seven percent in two days, and then things only got worse from there. We ended off the week down ten percent and as everyone knows the big fears that are spreading throughout the financial markets are worries of the impact the Coronavirus would have on the global economy. 

2:29 And how that’s going to shape out over time. Even as the number of reported new cases in China started to slow, the headlines that the virus is spreading at an increased rate outside of China, that’s what’s caught the attention of the markets. When we were talking about Coronavirus in December and early January, I think there was the belief that it was somewhat contained. So now that it is clearly not, then the markets have started to re-price what impact that’s going to have.

3:00 I definitely want to say, and I hope this is a big takeaway for people, that there is still a lot unknown out there. The information available changes daily. Just keep that in mind, that what you hear, literally a few hours ago, things might change in a short period of time. Even if you take a look at what’s been happening, yesterday compared to today, the headlines literally yesterday where the DOW was up one thousand points and today it’s pretty much down one thousand points.

3:34 So, you know, another take away too to keep in mind, and I think I got probably two or three that I’d love people to hold from this call. First is that I think there’s going to be several more weeks before there’s a clear understanding of the Coronavirus and the impact that it’s going to have. For you the investor, keeping your emotions in check is job number one. The headlines are going to be all over the place. There are going to be fairly significant market moves. In the short term I definitely do not recommend chasing performance or trying to time the market, because that’s not going to yield the results that you’re looking for, both in the short and long term.

For you the investor, keeping your emotions in check is job number one. The headlines are going to be all over the place. There are going to be fairly significant market moves.

4:18 Second big take away, I think, is that the impact of the Virus, it is expected to be meaningful, but not permanent. So I think as the markets try to digest what that actually means, there’s obviously going to be continued to be a lot of volatility. But it is expected at some point to pass. It’s just really unclear when that point might be. When the worst of the impact might be felt. 

4:47 Thirdly, note that the market swings are going to get more frequent and more wide, as evidenced by the last couple of days. My advice is super boring and that’s just having an asset allocation that is appropriate for your risk tolerance. That’s going to help you get through these periods where the market is going completely insane. I think that a lot of attention has been paid to the decline in equities. Equities have, yes, gone down and gone up and they climbed again today. But if you take a look at Corporate Bonds, they are actually up about three percent this year. They performed very well. So remember Corporate Bonds, they are an important part, Corporate and Government Bonds and Fixed Income Securities in general, super important part of your portfolio. Making sure you’ve got some fixed income in your portfolio, ensures you are going to be cushioned from a lot of volatility, and perhaps some of the negative impact of the Coronavirus going forward. 

5:59 What does that all mean? So for people firstly in Roboadvisors, folks who are in Roboadvisor portfolios, you’re generally globally diversified, you have a fairly balanced asset allocation. Keep in mind that the returns you are hearing online and in the media, they are not what I expect your actual portfolio returns to be like. So we’re used to hearing the returns, and only if you have a hundred percent SP500 Portfolio or hundred percent Equity Portfolio, would your returns actually match what the markets are doing? Because most people generally have more balanced portfolios, the returns are going to be less volatile. Again, another important reason to have a balanced portfolio. 

6:33 Those of you with an Investment Manager, it’s a bit of a mixed bag. It really depends on the funds that you are in. And if you are not sure, now is a really good opportunity to dig through the funds that you are holding, the Investment Manager that you’re with. And reassess if they are a right fit for you and if they make sense. Again your returns, if you are with an Investment Manager, should not be as bad as the broader market because you’re going to be holding some short term, some fixed income securities in there. And hopefully you are getting a little bit of value from the portfolio managers there, taking advantage of short term tactical opportunities. That’s something to keep in mind. 

7:12 And now if, for people who don’t know my philosophy on Roboadvisors, Investment Managers that are DIY,  I’m what’s called “Product Agnostic,” so I look for and I recommend to the clients that we work with, taking the investment choice that makes sense for them. And right now there’s a lot of value, I think, in getting rid of that emotional burden of trying to manage your own portfolio. 

7:38 Thirdly for DIYers, it’s a little bit all over the place. I’ve seen DIYers who are full on equities, throughout this entire run they’ve got no driving power to spare right now. And to them it makes things a little bit difficult. That said, I would say it still does make sense to de-risk your portfolio to an appropriate manner. Just going back to plain Jane asset allocation. It may mean that you are selling stocks at gains that are less than what you thought they might be. But it’s a really good opportunity to evaluate where you are at. It’s a good opportunity to value where you’re at. It’s a good opportunity to evaluate the companies that you are investing in. Who are the good brands that you want to stick with long term vs. who’s meh, not that great, and maybe they got into your portfolio for a reason that you don’t even remember. I think now is a really great time to take a look at overall what’s in your portfolio and making sure that there’s an intentional reason for each of those holdings. 

8:36 Finally for people who are in cash, this is quite a few people nowadays, who were in the run up of stocks going into the end of 2019, where sure there was a crash or some type of market decline that was going to happen. Really nothing did kind of happen, and I’m not sure how many of those people got into markets or started to chip away. But if you have started to or maybe you haven’t and are still in cash – getting in is extremely difficult right now. Where there’s tons of volatility. Everything feels like it’s expensive, and that it could soon decline in price soon after you purchase. Setting goals, having an investment policy statement – it’s really important to have – so that you have an understanding of when you’ll need your investments. You have a road map to figure out what you want to do in situations like this. General guidance for people if you need your money in the next six to twenty four months because you’ve got some kind of purchase, home renovation, down payment for a home, car purchase – whatever it might be – anything that requires money in the next couple of years, I would say you want to put that money in cash. If not cash-cash, high interest savings account is fantastic, or short term GICs. But if it’s long term money that you are sitting on and that you won’t need, 20-25, I think it still makes sense to start deploying that money. Do it responsibly. Do it within the context of having a road map and with an asset allocation that’s appropriate for you. There’s no need to do it all at once. You can nibble away at a few weeks or a few months to get comfortable. But again remember that it’s going to be a fairly choppy environment. So, you know, your best bet is to set a plan, start nibbling away and probably not pay attention to the financial media too much. 

10:23 That’s most, I think what I had to talk about upfront. I did get a few questions from folks. I’ll take a second to gather these

10:45 So the first question “is it more of a time to panic and sell or time to start buying?” I would say it’s actually neither. The way I look at that is, again as I mentioned, is setting up a discipline for whatever asset allocation you decide. For example, if you decide in your asset allocation, or in creating an investment policy statement that you want to have a 60% equity portfolio, 40% bond portfolio. If you think that makes sense. That makes sense when you made the decision,  and that’s kind of a long term asset allocation – now perhaps that portfolio is 52% equity and 48% bonds. So you’re a little bit away from your target allocation. The neat thing about setting up these types of disciplines is that the buy/sell decision is already made for you. The way to look at it and the way I counsel investors to look at it is that you are basically selling the excess 8% you gained in your bond holdings and you are reallocating that towards your equities so that you get back to your target asset allocation. I think that’s the way to answer that question, whether it’s time to just start buying or selling. Again, another philosophy that I’ve got, just in case people don’t know, is that I do not use any type of predictions whatsoever when it comes to the market. The folks on TV who do it and say the SFA TSX is going to be at blah blah blah, I think are insane. They have absolutely no idea and when it comes to making investment decisions and buying/selling decisions, might sound a bit old fashioned, but I think asset allocation is the way to go.

12:28 Second Question: are we supposed to be seeing a video, the answer is no, it is just the audio only.

12:39 Third Question: So, what exactly about the spread of Coronavirus outside China is impacted in the financial markets and what are the implications? What exactly it is, is just a re-pricing of risk, it’s a re-pricing of economic activity, you’ve seen in – you may or may not have seen in the last few days a number of announcements coming from places outside of China. I think in particular what’s really interesting is the Italian government and Italian economy has really taken a number of measures to try to contain this spread. I think the most recent headline I saw was that they are shutting schools until March, the middle of March or so. These types of actions which policy makers are taking, whether it’s schools or travel or additional screening or testing – or whether it’s businesses cancelling conferences which impact the ability to get deals done or improve sales. I think that is going on right now in certain areas in Europe and across the globe. What’s going on now is that people are saying “Oh crap, that’s probably going to show up in North America at some point. And if it does, what is the impact on GDP or growth expectations? What’s the impact on EPS for the companies that I hold?” People are starting to factor in and what’s called just re-price that risk of those events happening. We’ve gone from something that, by the end of January – keep in mind the financial markets were not concerned about Coronavirus, I don’t think I even saw once in any kind of research report. Even though it was going on in the background, the markets had not priced in any kind of risk that the virus would spread and definitely not priced in any kind of risk that spreading would result in an impact to earnings or economic activity. So that’s what’s going on right now. As different headlines come and go, I think the markets are going to see that and trade off with those headlines. It’s a very much shoot first, ask questions later mentality. Today’s headline, that there is a cruise ship off the coast of California, that’s being denied entry – and so investors see those headlines and they don’t necessarily sell at first but they stop buying. Once you have that diminished demand for investment assets, that’s going to contribute to prices falling a bit…Or a lot! 

15:18 – Other Question: What to do if you have less than 20 years, seven or eight years? It’s taking a balanced approach here. Seven or eight years, while it is still long term, it’s not one or two – it’s taking into consideration, we’re not sure at which point in any kind of business cycle that we are at. It’s been a solid 10 years since coming off the lows of the financial crisis, much longer than your typical seven to eight year business cycle. Things have continuously progressed quite well as far as earnings growth, as far as low unemployment, as far as GDP growth globally that’s come off slightly even before Coronavirus. If you got seven to eight years, I still think it makes sense to deploy some money. But again take into consideration your asset allocation, take into consideration that you’ll want some kind of – to become more conservative as your time horizon shrinks. So if you are starting at seven to eight years you just have to be mindful that you know in a couple years, as your time horizon shrinks that your asset allocation should also become more conservative.

16:35 Next Question: Advice for investing a large amount of parked cash right now into the six figures. I wouldn’t say there’s anything to add, other than the answer I had previously for people who are sitting on cash right now. The best advice is to put together a plan. If you’ve got money in cash, what is it for? When do you need it? How much risk can you afford to take with that money? There’s both willingness to take risk in the investment markets and there’s the ability to. So try to understand that, that’s a big component of when I’m working with clients. To figure that out in an investment policy statement. Putting together a road map. So the advice for people with large amounts of money parked in cash is, it depends. Cash is needed for something immediate. If you have a purchase in the next 24 months or so, I would say you are fine in a high interest savings account or a short term GIC. I know you don’t hear investment people say that too often, but that would be my advice nowadays. If you have a longer return time horizon, it’s just straight planning, understanding what that money is for, how much time you’ve got, how much risk you want to take, and then deploying it responsibly.  

18:14 That’s it for questions for now. Will give you all a couple of, few more seconds if anything pops into your mind. Feel free to ask, any and all questions. There are no bad ones. Hopefully so far you guys have felt like this is helpful and somewhat insightful. 

18:49 Things that are going off in my mind, when it comes to trying to figure out what’s going to happen next. I really do feel like the volatility is going to continue. Usually in periods like this it goes on longer than people think. We can go through lulls where there aren’t significant headlines and where things are quite stable. Where people get a little bit of feeling of confidence. Then all it takes is one or two headlines for things to go a little bit south again. One thing that’s a little bit of a concern to me is watching how the markets respond to things like Federal Reserve cuts or Bank of Canada cuts. Typically these cuts can result in some amount of financial support for the markets. But that has been fairly short lived. For the Federal reserve to have been a couple weeks away from the regularly scheduled meeting and to have said NOPE we can’t wait, we are going to cut by 50 basis points, not 25, which is their usual increment – but 50 – that is something that actually takes me back to I believe it was 2008 in October. That was the last time that I believe there was an emergency 50 basis point cut by the Fed. Just to give you some context about how significant that is. You do have central banks both in North America and around the world looking at what’s going on, the impact at the economics and willing to take measures but yet we’re still unsure at this point about how that’s going to support any kind of growth.  

20:37 Question not directly related to the topic of markets, is on me, basically on my background. How I came to be in the personal finance space. Long story short, my original capital markets job was with DBRS (Dominion Bond Ratings Securities) and that is a job that I started analyzing corporate credit in the middle of the credit crisis. The most miserable period of time in terms of corporate bonds, fixed income, and credit, but learned a lot! I spent three years there as an analyst covering energy and infrastructure and then moved from there into Sun Life and their Invest Management group also covering energy and infrastructure. I spent a total of 10 years in that space, mostly covering corporate credit. The segway into personal finance really just came from friends and family who had a lot of good questions I think everyone has. What’s a stock? What’s asset allocation? What’s this thing I heard? So for me I wanted a little bit more of a personal connection with people. Taking investment topics, de-mess-ifying them for people is something that I really enjoy. I think the industry really makes it significantly more complicated than it needs to be. The financial media is a nightmare, in terms of trying to get any kind of helpful information out of it. So that is something that I wanted to do. I’ve been very fortunate to find a number of really outstanding people who are also people-centered, who want to do right by the client. That’s why I decided to join the Spring team. Sure as all of you know, they are fantastic people. Everyone’s here to help you out irrespective of which part of your financial journey you are on. I definitely feel like we have a good team. Hopefully you guys think so too. 

22:53 And with that we will end it off there. At any time if you feel like you’ve got any questions, anything you want to follow up on, please feel free to reach out to me directly. Otherwise, stay away from the financial news. Have a good evening , hopefully to talk to you all soon. 



Darryl Brown
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