March and April of this year were two of the most difficult monthsever for investors of all kinds, and that’s especially true for thosewho were heavily invested in any of the sectors hit hardest by theCOVID- 19 pandemic and accompanying economic downturn.
Jared Snider, a partner and senior wealth advisor at independent firm Exencial Wealth Advisors, which has offices inConnecticut, Oklahoma and Texas, shared the cases of twocouples and a single client. One couple, in their mid-50s, washeavily invested in an energy firm and averted a near economiccatastrophe with his guidance, he said.
The husband is an executive at the energy firm they bothwork for, and Snider had been discussing some “what-if planning” with the both of them for a while, he recalled. The wifewas interested in retiring early, while the husband was a fewyears away from retiring.
But there was one big risk in their portfolio: About 50% oftheir investable liquid assets were in the company they bothwork for. It’s an investing mistake that company executivesoften make — and one that advisors are in a good position to fix.
“We were fortunate in that case in that we began havingthose proactive conversations around what was really in theirbest interest,” and they unpacked the “risks associated with[that] concentrated investment,” Snider said.
“We started diversifying that position to a smaller degree [atthe] end of 2019 and then moved out of that position” entirelyby the end of January, he added.
“They were fortunate,” he noted, to have been able to dothat just in time to avoid the huge market downturn in Marchand U.S. oil prices falling below zero in April.
“To me, that’s an example of when you are proactive, you
can have the ability to get out ahead of some of those risks that
are unknown,” according to Snider. “No one really saw COVID
coming, [and] no one was really seeing negative oil prices on
The couple still had some concerns about what was in their
portfolio, he said, as they moved out of investing in the one
firm they were most familiar with and opted into diversified
holdings in multiple securities.
As with most clients, their openness to take action and shifttheir portfolio strategy came down to a “critical life event” — intheir case both of them looking to retire and the husband “notwanting to have so much of his life’s work and resources tiedup in one company,” Snider explained.
The energy utility company’s stock the couple was so heav-
ily invested in had a 50%-plus decline after they sold it, Snider
said: “It was impacted pretty significantly in March. If they
had continued to hold it, they would have been in a meaning-
fully worse financial position as things stand today.”
They also had some airline and cruise line stock expo-
sure in their portfolio. “We exited
those positions in early March as
it became clear that the economy
was going to take a hit” and nobody
would be traveling, Snider said.
As for his single client, a Texas energy firm executive inhis 60s, he caught COVID- 19 and struggled with it for 16 daysbefore recovering. “Trying to juggle the fact that he was illwhile energy prices were going haywire was … a pretty bigchallenge for him,” Snider said.
The advisor also worked with a woman and her husband,who used to own a business, to create an integrated financialplan for retirement, making sure they had a “war chest” ofpreservation assets built into the portfolio; they were goingto take fixed income distributions in retirement, Snider said.
“Coming into March and certainly as the market startedweakening, this former business owner is seeing” what is happening and grew concerned because he just retired, just sold offhis firm, “turned off that source of income” from his businessand was relying on the financial capital he accumulated over theyears. “It was emotional and stressful for him,” the advisor said.
Snider and the husband were in communication by phoneand video conferencing since the start of the pandemic in theU.S. and, despite his concerns, “I
never heard panic in his voice,”he said, noting what helped wasthat “[the client] didn’t have alarge position in energy.”
On the other hand, “His wifehad a very high level of concernand required more reassuring.Finances aren’t necessarily herwheelhouse,” and here she wasseeing the news about whatwas happening with the marketand the pandemic, and it was“pretty stressful for her,” theadvisor noted.
However, it didn’t take that long — a 20-minute phonecall in early April — to reassure her by explaining they hadplanned for this. Although they didn’t know a pandemic wouldhappen, Snider and her husband were aware there wouldlikely be a market pullback and a negative event or two duringthe course of their retirement, he explained.
Granted, it was unfortunate that a major negative event happened so soon after retirement, but there was a plan in placethat was being deployed, according to Snider. The wife’s mindwas put at ease. Of course, it also helped that the markets havebounced back since then.