Christian Wagner – President, Penn Investment Advisors
On February 19, the stock market hit its highest mark in history. Less than a month later, on March 11, the coronavirus outbreak was declared a global pandemic, setting off the largest single-day market drop in a generation. In the weeks since, volatility has been the only constant, with near-daily surges and loses as the market reacts to international reports on the virus and economic relief efforts from Washington.
In this episode, we talk to Christian Wagner, president of Penn Investment Advisors, to gain a clearer picture of what is driving the volatility of the market, what individuals and families can be doing to protect their wealth during this period, and get his thoughts on what comes next.
Host: Can you tell us about your role at Penn Community Bank and give us a little bit of your background?
Christian: I am the President of Penn Investment Advisors, which is the wholly-owned investment subsidiaries of Penn Community Bank, and we provide Investment Management Services to individuals and governments, businesses, and nonprofits.
I have been with Penn Community Bank for going on 6 years and have been any investment business for a rather long time. I’ve seen a lot of different changes in a lot of volatility and bull markets and bear markets.
What is driving the market volatility?
The first thing is that the markets are controlled by human beings and – the one thing that hasn’t changed over time, whether it’s 50 years, 5 years, or 100 years hundred years – is human nature.
People do not like uncertainty. They don’t like change. And they fear things that they don’t quite understand.
So, we look at a situation like the one we’re in right now -between the coronavirus and the mass unemployment – and that is what’s driving the fear, and that’s what’s making this this market so volatile. That’s why we’re seeing swings of 700 points a day. Just entirely driven by uncertainty and fear.
What is the market telling you right now? Is this situation like the recession of 2008?
The difference between today and 2008 is 2008 was about the financial system and the weakness in the financial system. What’s really different about this is that, thankfully, the banks and financial system is significantly stronger than they ever have been. So that’s a that’s a really great backstop for the market.
The biggest change is that we saw a 36% downturn in 22 days. So markets are much, much faster than they usually have been. But, at the same time, it’s really important understanding that this is a normal part of the process of investing.
If we go back to 1928, there have been 25 bear markets. Some have been worse than others, but on average a bear market lasts about three hundred days. Now, let’s turn it around the other way: bull markets last about three years. So that’s a pretty good trade-off as an investor.
What is your message to those who are concerned about their portfolio or financial footing being impacted by this situation?
So first tip right now – and it’s on sounds kind of coy – is “don’t touch your face and don’t touch your stocks.” So take the time and analyze what you’re doing take a deep breath and be patient.
Here are some other tips for those who are lucky enough to still be working:
- We always hear about an emergency fund this is a really, really good example of why it’s important to have an emergency fund. I think that the problem is, the guidance is always been six months of salary. So and think about it for you. How hard would it be for you to save six months of your salary in today’s day and age? So when we look at it, we say start with saving as much as you can so you have some rainy day emergency fund. Don’t make it the fund where you save for a vacation. Truly make it that emergency fund.|
- We think people need to spend a lot more time thinking about their future and taking a good look at their position right now, and saying “Hey, you know, we’ve all spent an entire month at home social distancing. What are we savings?” Use that to determine what’s important and, maybe, what can be cut to help save.
- Whatever your current situation, take time to review your 401k and, if don’t have a retirement plan, now is the time to really sit down with someone and talk about how you can start one. I’ve been in this business for a long, long time and I have never met anybody that has complained that they save too much money for retirement.
We’ve heard that individuals can potentially take money out of their 401k in an emergency like this. What is this resource for someone facing unemployment right now?
So, there are actually a couple of different major changes in an access to 401K.
Right now there are two things that people could be doing:
- They can borrow from their 401k and take money in and borrow from yourself. The CARES Act changed this borrowing limit, so people have the ability to borrow twice as much as they did in the past. As opposed to a previous maximum of $50,000, now loan maximum is $100,000.
- The other option – which may be more attractive, but does have a consequence – is to take a hardship withdrawal. This might make sense if you’ve been significantly affected by this situations. This hardship withdrawal allows you to take a cash withdrawal from your from your account up to that $100,000 and then you can pay the taxes over the three-year period, so that get you more cash quickly and more cash up front. I usually don’t recommend that if it all possible, I would highly recommend that people go to taxable savings first and use that as a last resort. The good news is, if you if you borrow the money and over that three-years you pay back some or all of it, you can file for a refund on the taxes that are due and there are no 10% penalty withdrawals, either. Obviously, if you were making those choices make certain that you talk to your tax professional and understand how it’s going to impact you.
Should listeners with student loans look to take advantage of any loan forbearances, including on student loans?
If they have new options for loans, they should be looking to take advantage of them at this time.
I think from the perspective student loans: interest rates are set by Congress, so there is absolutely no way to make a principal only payment on a federal student loan. Every time you make a payment, you’re also paying interest. This forbearance actually allows you to make principal payments. If it all possible, continue to make your student loan payments – maybe you can even pay a little bit extra – to help you pay those student loans down more quickly.
Another area that I would focus on is if you have credit card debt and things like that. You always want to focus on that high interest portion. So if you’re able to do so, I would advise it.
Where do you think we might be heading in the near-term? And also, what do you think a post-pandemic economy might look like?
This mass unemployment will create – and we’re already in it – a global recession. The length of the recession again depends on how long it’s going to take for everyone get back to work.
From the perspective of a recovery, I think it is going to take a little bit longer because the stages of getting back to work – and that is going to be different from one area to another. Unfortunately, some of these small businesses aren’t going to be able to get back at full capacity and they will be casualties of this of this pandemic from an economic perspective.
So, you know, we expect to begin to see some recovery – with the equity markets returning to their peak – probably not until Q3 2021.
There will be recovery period and the global economy will ultimately recover.
What other advice do you have?
This is a great time to have a reset perspective take a good hard at your financial situation.
Now, I don’t mean you should look at that your investments change everything. I mean take a good hard look at your investments and, frankly, become more involved.
It’s a really good time to kind of get a refresh on this part of your financial life.
Investment advisory services are provided through Penn Investment Advisors, Incorporated (PIA), a Registered Investment Adviser. PIA is a wholly-owned subsidiary of Penn Community Bank (Bank). Investment products, securities and services offered by P-I-A are not a deposit of, or obligation of, or guaranteed by the Bank, or an affiliate of the Bank, are not insured by the FDIC or any agency of the United States, the Bank, or any affiliate of the bank and involve investment risk, including the possibility of loss of principal.
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