Bogleheads Keep Calm and Carry On With Equities Whipsawed
Bogleheads Keep Calm and Carry On With Global Stocks Pummeled
(Bloomberg) -- Anxiety? Yes. Panic? No.
As the S&P 500 plunged Monday, calm reigned on the online forum of the Bogleheads, an investing group inspired by the late Vanguard Group founder Jack Bogle and famed for its cool-headed, long-term attitude toward passive index investing.
“Feeling awesome! My annual bonus hits this week and goes directly into my 401k,” one contributor said in a post.
Bogleheads are notoriously blase about market volatility, but a wider range of investors also seem to be carrying on, if not exactly keeping calm, and maintaining portfolio allocations. Advisers say that clients in passive investments, such as those invested with robo-advisers, are nervous but aren’t abandoning index funds and that some see potential bargains in the carnage.
Charlotte Ransom, chief executive officer of London-based Netwealth Investments Ltd., sees a change in mood among clients sitting on cash.
“They are starting to invest at a higher level over the last few trading days,” she said. Netwealth uses index funds and investment professionals to manage money for clients.
Stocks tumbled more than 7% as U.S. markets opened Monday, the biggest intraday drop in a decade for the S&P 500, fueled by a collapse in oil prices and fears that the spreading coronavirus will cripple economies worldwide. Equities are poised to rebound Tuesday after President Trump said he plans “very dramatic” actions to support the economy.
At U.S. robo-adviser Wealthfront, clients have been moving money to high-interest cash accounts from investment accounts, a spokeswoman said in an email. Rival Betterment said it hasn’t seen an increase in customer inquiries or withdrawals.
The whipsawing in markets is a big test for robo-advisers that use algorithms to adjust portfolios to market conditions. Nutmeg, a U.K. retail investment firm that only uses exchange-traded funds, said 96% of its clients had taken no action in changing their portfolios during the past two weeks, and less than 0.1% initiated withdrawals.
This market sell-off is different from the 2008 financial crisis, said Ben Kumar, an investment strategist at Seven Investment Management in London. Clients, many of them middle-class, have been calling with anxious questions, he said.
“People are scared for their health and their families, and then you add onto that the oil-price fall -- reading that over the weekend has been a definite worry for clients,” Kumar said. “Our job is to reassure them that their portfolios are diversified, and that their horizons are long-term.”
‘Not Healthy’
While advisers understand the impulse among clients to do something, they’re working to temper those emotions.
Watching the market day-by-day, or even month-by-month, “it’s like stepping on a scale every half hour while you are dieting,” said Dana Anspach, founder of Sensible Money, a registered investment advisory firm in Scottsdale, Arizona. “It’s not healthy.”
Some savvy investors are converting traditional investment retirement accounts to Roth IRAs, said Dennis Nolte, a financial planner at Seacoast Investment Services in Oviedo, Florida.
With a traditional IRA, holders will pay income tax when they tap into the account in retirement. Roth IRAs are funded with after-tax money, which can be withdrawn tax-free later in life. In happier market times, the need to pay taxes on the money being converted to a Roth from a traditional IRA was a big disincentive. Now, for better or worse, that prospect doesn’t loom so large.
To contact the reporters on this story: Suzanne Woolley in New York at swoolley2@bloomberg.net;Edward Robinson in London at edrobinson@bloomberg.net
To contact the editors responsible for this story: Pierre Paulden at ppaulden@bloomberg.net, Peter Eichenbaum
©2020 Bloomberg L.P.