Much of the U.S. retail sector was hit especially hard by theCOVID- 19 pandemic. That reality became all too clear for a clientof Jane DeLashmutt O’Mara, CFP. The portfolio manager at FBBCapital Partners in Bethesda, Maryland, has a longtime clientwho lost her marketing job at an online retailer.
“She contacted me the first week in May” about being laidoff from her executive-level position that week after only aboutthree months at the company, the advisor recalled. The client,who has children and provides the key source of income for thefamily, “now she finds herself in the midst of a global pandemic,” at the same time as “marketing positions are being shrunk”at many companies, DeLashmutt O’Mara said.
During that phone call with the client, “we went throughsort of like a laundry list of steps that she could immediatelystart taking to stop some of the outgoing cash flow that she hadsort of automated in her savings plan,” the advisor recalled.
The talk also included a review of her income stream andhow to deal with health care, debt payments and other issues.One way she could save money right off the bat was by dropping the payments she was making for lawn care.
This particular client “felt like she had financially what sheneeded to get through this, but she was concerned,” the advisor explained. “I don’t think that she feels that she has manyopportunities to reenter the workforce probably for the nextyear. She received some sort of a severance package, which isgoing to keep her whole here for at least a couple of quarters.”Fortunately, the client and advisor had worked together forsome time. They’d built up a cash reserve, “and so the cash isgoing to really help her to feel confident to get through this, ”DeLashmutt O’Mara said.
The client “wasn’t so much worried about her investment port-
folio because she’s still pretty young
relative to what she feels her retire-
ment age will be,” the advisor explained.
“But I do think that she’ll consider looking
at potentially refinancing outstanding loans they have,” noting
the main issues were resolved through a couple of phone calls.
As it stands now, “school’s out,” the client is “home with the
kids and looking for work, [but] she did mention that she was
able to find some kind of contract work” from a friend who need-
ed help, which is “keeping her a little bit busy,” the advisor said.
She added that the client was upbeat about her family’s
“fairly conservative” portfolio, but not so much about her
chances to quickly find another full-time position in her field.
DeLashmutt O’Mara also pointed to a few clients, includingnew ones added early in 2020, who had a tough decision tomake when it came to either keeping risky stocks they weretoo heavily invested in or selling them quickly and payingcapital gains taxes on them.
One retired couple in their 70s “came onboard with just
around 90% stock” as part of a portfolio they had with another
advisor, she recalled. “Given their distributions from the port-
folio, the allocation was just completely wrong.”
Though they “were willing to discuss making changes to
the portfolio,” they also “were procrastinating on the decision;
then finally, by the time that they agreed to move forward with
the plan, it was mid-March, just before things really bottomed
out,” she said.
“They did have significant energy exposure, as well asretail exposure. They were kind of buy-and-hold investorswho had a whole bunch of stock literally that they probablyhad owned for 30 years or more. Many of the names wereno longer what we would consider to be really great investments,” the advisor explained.
The clients’ hesitancy to unload the stocks, as the firm
advised, resulted in a bad situation becoming worse,
DeLashmutt O’Mara said. Their portfolio declined in value so
much that, even after the market recovery, the clients had lost
more than $200,000 since the start of 2020, she said, “rather
than paying [$25,000] to $50,000 in taxes on gains.”
While “hindsight is 20/20,” the plain truth was that the
couple had “significant exposure to cyclical areas of the mar-
ket like energy, industrials, retail and that sort of thing, [so] at
any time when you had looked at this portfolio … you would
have known to reduce those areas,” she explained.
In stark contrast, there were other clients who agreed inFebruary to reduce their overexposure in certain risky stocks,while paying the capital gains taxes on them. “We were able toget them out of a lot of high-risk areas, so they’re in much better shape,” according to DeLashmutt O’Mara.