Category Archives: covid

Allocation

During the Covid crisis we spent many days having webinars to try to calm people’s nerves about what we saw as the outcome of all recessions and market dislocations. Our advice was to stay the course and continue to add to your retirement funds. As we approach the middle of June the market has almost fully recovered the enormous losses incurred at the beginning of the year. While we made the point that the market is a future predictor and will be recovering ahead of the economy, it is important to recognize that the economy has not recovered yet. This is a good time to reflect on how you felt during this period and if you were comfortable with your portfolio during the crisis. If you were uncomfortable with your portfolio during the crisis then it may be a good time to retake the questionnaire and make sure your portfolio represents your investment comfort. We encourage to login and retake the questionnaire with your company’s credentials here. Please feel free to call us for help.

What should an investor do now?

On Dec 26th for 2019, our blog stated:

It’s not the price of the market, it’s the valuation of the market. The markets are the greatest predictors of future economic growth. Sometimes the markets get too enthusiastic. Granite Group believes that the 2020 returns will not be as robust. If you are retiring or in need of funds, please make sure your allocation reflects your risk and needs.

That is what was said then, and today we want to give some insight on one way to value the market, and what you can do if you have short term needs or long-term goals:

One way to value the market:

The Price to Earnings Ratio (P/E) is the price the index divided by the earnings. If the price of the S&P index is 10 and the earnings is 1, the P/E is 10. The average over the last ten years is 16.4 times earnings. Before covid and oil issues, the P/E ratio was at a premium of 19.5 times earnings for 2020.  The P/E ratio (as of today) stands at over 22 times 2020 earnings. That means, the markets are more expensive today than they were before covid.

What should an investor do?

For investors with short term needs, college tuition, retirement or other more secure needs: since the market has moved up from the bottom, this could be a good time to secure your short-term needs. Please be sure your allocation meets your needs. This is true for any market condition.

For investors with a longer time horizon than 12 months, look at 2021 earnings. As of  today’s writing, the markets are trading at almost 18x 2021 earnings. That is not expensive or cheap given the amount of stimulus. It will be a slow recovery, but a recovery none the less. On dips, we would increase yearly contributions.

If you are one of our 401k clients, please log on to the educational site to reassess your risk. Use your company password. After you receive the results, be sure to speak with your advisor or click on the “about us” and email Sharlene Kelly for further assistance.

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