Every day, there’s new information about the most recently discovered aspect of the coronavirus; its influence has spread across countries and impacted the global economy. While news outlets theorize about what this means for the market, Members Trust Company has experience with managing investments during difficult times. We rely on exchange-traded funds (ETFs) to manage our clients’ money, and this approach has proven to be ideal in navigating volatile market conditions. We’ve used ETFs to protect and grow client portfolios for well over a decade, continually demonstrating the skills necessary to make the most of turbulent markets. While many investors feel unsettled by the news and market conditions, our clients remain sensibly invested in assets that continue to have a positive outlook for the future.
The Lesson of the 2008 Financial Crisis
In 2008, the market suffered a dramatic hit due to speculation on faulty investments. Though the housing market received the bulk of the media’s attention, the crisis was far-reaching and impacted many market sectors. The government issued bailouts to numerous financial organizations, and many people saw their investments disappear within the blink of an eye. Our clients, however, had a different story. MTC used effective money management techniques to protect our clients from dramatic losses and even found areas in which we could continue to make new investments. In essence, we remained a step ahead of the crisis by keeping calm despite the chaos and employing prudent financial practices.
Some investors panicked due to the crisis and wound up selling their assets at record lows, investing the proceeds in long-term bonds or storing the cash in certificates of deposit. Unfortunately, these long-term assets locked money up for extended periods of time at low interest rates, meaning that investors were unable to leverage those funds to take advantage of the rising market during the recovery. This error, unfortunately, cost people many thousands of dollars and is something that we advise our clients against.
Our Key Means to Protect Your Assets
Using ETFs is, simply put, our most valuable tool for protecting client portfolios. The primary reason they are so effective is that they permit midday trading. This flexibility lets our portfolio managers make quick decisions based on actively developing situations. We typically include treasury securities in our portfolios, which have proven time and again that they rise in value as the value of equities declines. This way, during volatile markets, we can sell off treasuries and use the proceeds to purchase equities when they are on sale.
In essence, this method enables us to sell high and buy low. When deciding which equities to purchase, we carefully select asset classes that are likely to bounce back as soon as the situation resolves. ETFs give us the ability to serve our clients with a unique combination of bold purchasing action and conservative value retention.
Applying Our Experience to an Ongoing Situation
During the 2008 Financial Crisis, we honed our methods in real-life scenarios. As Forbes reported in 2009, MTC was the #1 top-performing company for exchange-traded fund management in 2008. We learned that our methods produced positive results, which offered financial security to our clients during a volatile market. In the intervening decade, we’ve further developed our skills and can apply tried and true methods to effectively use ETFs to your advantage.
We can draw parallels from the Financial Crisis to the market impact of COVID-19. Just as we did in 2008, we continue to maintain a long view in managing our clients’ nest eggs. We know it’s unwise to panic-sell assets when prices dip, only to buy them back at full price once the market recovers. Our experience has confirmed that a volatile market doesn’t guarantee drastic losses when you take a reasoned, calm approach to trading. In fact, there are opportunities to realize capital losses for tax benefits in upcoming years, by offsetting your future capital gains. For maximum benefit, you can re-purchase similar investments after the sale so that you don’t miss out on the recovery.
Members Trust Company Remains Vigilant with a Proven Method
In some ways, the same principles behind effective money management during a volatile market hold just as true in a more stable market: if you make rash decisions based on fear, you are more likely to lose money and risk your financial future. MTC keeps a future-focused investment approach and never loses sight of the fact that the current troubles will pass. Indeed, the S&P 500 has been on an upward trend since 1926. History has shown us that after periods of volatility, the stock market not only recovers, but moves on to reach new heights.
Members Trust Company blends Wall Street expertise with Main Street values, delivering personalized investment management without the ego or exorbitant fees. Our team of investment professionals have not only been recognized in the industry as innovators and subject matter experts, they also pick up the phone when you call and treat you and your family as if you were their own.
This article is for informational and educational purposes only and is not intended to provide specific legal or tax advice. For specific legal or tax advice, please consult with your attorney and/or accountant. Trust and Investment Products are uninsured, not guaranteed by Members Trust Company, any credit union or any federal agency. Any investment exposes an investor to investment risk, including the possible loss of principal.