COVID-19 is hitting investment portfolios hard with a series of precipitous plunges in asset values not seen since the market meltdown of 2008. The financial news is stomach-churning; all manner of “worst since,” “biggest drop in” statistics accompanied by graphs with lines helpfully pointing straight down in case you didn’t quite get the point. And the headlines keep piling on—air travel bans, college students sent home for the semester, major (and minor) events canceled.
Stock markets don’t like uncertainty, and the situation continues to be frustratingly fluid. Until we see the peak of the virus and have a sense of how to calculate the economic impact, I expect volatility will continue.
For funders who rely on investment returns to fund their grantmaking, the situation is nothing short of alarming.
What are investment experts saying?
Several investment firms have put together calls and webcasts in response to market movements. I’ve sat in on many and will continue to do so. Hearing from professionals who have deep experience in the industry and have weathered many market events is extremely helpful.
I advise everyone to take advantage of what is essentially free advice from career investment professionals by joining these calls/webinars as you are able. Yes, some of the content can be confusing—I still have to do some brain gymnastics when talk turns to yield curves—but a good portion is fairly accessible.
Here’s the gist of what I’ve heard on these calls: Do nothing. Stay the course. Don’t worry. This happens. You are in it for the long term. If you sell now, you are locking in losses.
In short, the mainstream professional consensus is this spat of volatility should eventually pass and does not represent a fundamental unwinding of the financial system.
The case for holding steady is buoyed by the fact that, coming into 2020, the economic outlook was pretty good. The trade war had subsided. Consumers were financially healthy with relatively higher savings and lower debt. Unemployment rates continued to stay low.
How is Cedar Tree Foundation responding?
How hard is it to hear that inaction is the best action? Really hard, I think! Even though I know, logically, that trying to muck around with asset allocation and holdings while the market is in free fall is a terrible idea, I still find it difficult to take comfort in the assurance of what should happen in the future when the present is so disquieting.
Here are some guideposts I’ve found helpful:
- Information and transparency—For better or worse, we live in an age where news is available immediately and from multiple sources. I can keep myself, and Cedar Tree’s staff and board, updated as often as daily on any developments in the market. We can continually reevaluate the situation. All of us are connected through email/phone/text. If I need to reach anyone immediately, I can do so.
- Using an investment consultant—I found that having a consultant to turn to when things go south in the market is really helpful. Our consultant is showing her mettle by being super responsive and offering to host an impromptu call or talk through any concerns the board might have. She assures me she and her firm are monitoring the situation and will be in touch immediately with any developments. I appreciate the foundation has access to her expertise and experience.
- Investment policy and asset allocation—Any basic investment policy has asset allocation at its core, which is structured to incorporate both peaks and valleys in the market. Cedar Tree’s allocation tends to have a slightly lower risk profile than the standard. It was really hard to see fixed income spitting out 2%–3% returns when equities were returning double digits, but, right now, fixed income is the only asset class in the positive.
- Stay the course—Stay the course means sticking to your asset allocation and also standing by your grantees.
Standing by our grantees
In my mind, the most important thought to keep foremost is this: The point of a foundation investment portfolio is to deploy funds in the world for charitable purposes. Supporting grantees in their work is Cedar Tree’s guiding principle. We have no plans to curtail grant budgets despite the market drop.
Earlier today, our staff sent a quick informal survey to a small set of grantees and learned that while we are fretting over numbers on a graph and whether our telecommuting software is up to the challenge of an extended work from home scenario, we have a grassroots grantee whose employees won’t be paid if they can’t canvass door to door and an urban farm grantee who is seeing orders canceled as events are put on hold and restaurants scale back.
Conceptual problems for us (how this will impact the portfolio’s long-term value) are an immediate crisis for grantees (how to keep operating this month).
So, in short, keep calm, take advantage of the professionals, be there for your grantees. And wash your hands!
Debra Moniz is director of administration and finance at the Cedar Tree Foundation, where she oversees the foundation’s investment portfolio as well as manages two grant programs. She is not an investment professional, and opinions expressed here are her own and should not be constituted as investment advice.
On March 24, Debra is hosting an investment discussion call on the market impact of COVID-19 with guest speaker Sandip Bhagat, chief investment officer of Whittier Trust. All Exponent members are invited to attend. If interested, please email Debra for the call-in number.