FAQ: Coronavirus and Market Volatility – This is a client approved update on the current market conditions from Goldman Sachs. I am sharing this with you to educate you and to calm some fears you may have if you are closing watching the news and feel uncertain about your investments.

The coronavirus outbreak has continued to be a source of volatility in financial markets as more countries have reported cases of infection. In this Q&A, we provide a brief update on developments and discuss potential scenarios.

Why have markets become more volatile recently?

We believe recent volatility is being driven by a broad repricing of risks as a result of the rapid spread of COVID-19 cases outside of China.

For much of February, financial markets appeared to price in a central scenario in which the impact of the virus was relatively temporary. China took aggressive measures to contain the outbreak and support the economy, creating the potential for a rapid recovery in activity. Data provided support for this scenario as the growth rate of new cases in China began to slow and closely watched data on Chinese power consumption, passenger traffic and property sales showed signs of improvement. In a scenario where the virus was contained with limited impact, investors likely began to look ahead to the stimulus effect of China’s easing measures.

Markets now appear to be pricing in a higher probability that the coronavirus impact will be more severe and prolonged. The key drivers of this repricing include a surge in reported infections in Italy, South Korea, Iran and other countries. On February 26, the World Health Organization noted that there were more new cases reported from countries outside of China than were reported from China. In the United States (US), confirmed cases remain low but technical problems with the initial test for the virus have limited the number of tests, and a senior official with the Centers for Disease Control and Prevention (CDC) noted the potential for severe disruption to everyday life. In Japan, the government has recommended that all schools close until April.

As the flow of news related to the virus has worsened, markets have repriced to reflect lower expectations for global growth and corporate earnings. The repricing has been very broad, with little evidence that investors are differentiating by sector or by individual companies at this stage.

What are the potential scenarios from here?

We see three main scenarios:

1. 1)  An increase in the flow of negative news related to the virus, which would likely lead to further repricing of risk;
2. 2)  Stabilization in the growth rate of new reported cases, which could lead markets to reverse at least a portion of the recent moves; and
3. 3)  A decline in the growth rate of new cases, which could lead investors to conclude that containment measures are succeeding, and refocus on the potential for a snapback in activity given stimulus from lower interest rates globally and China’s aggressive measures to support the economy.

Markets currently appear to be pricing in a mix of the first two scenarios. For example, the Chicago Board Options Exchange Volatility Index (VIX Index), a measure of implied volatility1 in the S&P 500, has risen sharply but pricing suggests daily implied volatility of less than 2.5%, compared to levels around 5% to 6% during the 2007-2008 global financial crisis.

Meanwhile, interest rate markets are pricing in roughly 75 basis points2 of easing by the US Federal Reserve (Fed) and longer-term interest rates, including the US 10-year yield, have moved to new record lows. Despite these moves, the demand for hedges against further declines in rates remains strong. We think this is particularly notable given that the Fed has indicated that negative policy rates would be among the last measures it would consider in a future easing cycle.

In Fundamental Equity portfolios, we focus on the long-term, emphasize quality, and maintain balance in our portfolios. As a result, we have been able to respond to the opportunities the market has made available in this more uncertain and increasingly volatile environment. We have a heightened awareness of the risks that exist in companies 1) exposed to travel (airlines, cruise lines, hotels, gaming, logistics, shipping, and luxury goods), 2) exposed to China manufacturing and consequent supply chain disruptions, 3) with higher leverage (that may not be able to weather softening demand), and 4) are more cyclically exposed, especially where demand is more globally driven (energy); and those that have benefitted, especially companies exposed to online consumption and parts of healthcare. Looking ahead, we believe the sharp price adjustments are creating an opportunity to selectively add to our higher conviction ideas. We seek to maintain a balance in our portfolios and will be clinical in our decision making.

In Fixed Income portfolios, our goal is to have balanced portfolios that may produce returns across a variety of scenarios. As a result, we have not made significant changes to portfolios and we continue to see value in holding credit risk, balanced by exposure to duration. While credit has underperformed, the rally in government bonds has helped to cushion the impact on portfolio performance in multisector portfolios where we have implemented this strategy. We see less value in mortgage-backed securities (MBS) given the potential for rising mortgage refinancing activity, and we are cautious on emerging market currencies due to the general risk-off3 tone in markets. We see more value in areas such as investment grade and high yield corporate credit, which have seen significant underperformance due to investor de-risking.

In Quantitative Investment Strategies (QIS) portfolios, idiosyncratic or unpredictable events such as the coronavirus outbreak are reflected in our stock selection models through a few mechanisms. First, returns will flow through our faster moving signals, such as our Themes & Trends signals. These may change which market themes we view as best poised to potentially outperform. Next, as investors reposition their portfolios and commentators opine on events, our Sentiment factors will integrate the changing market attitudes into our investment views.

In Money Market portfolios, we have modestly extended duration to hedge against some of the more severe outcomes and the growing likelihood that the Fed will cut interest rates. Although it will take time for the Fed to assess the economic impact of the virus, policymakers may elect to cut rates at one of the upcoming meetings to offset tighter financial conditions.

What is the likelihood of a recession? How should investors think about the outlook from here?

The economic outlook is uncertain but at this stage we continue to believe a recession is unlikely in the US or global economy. Economic activity was on an improving trend as recently as January, and we think growth is likely to remain resilient in a scenario where the impact from the coronavirus is primarily contained to the first half of the year. We have revised down our outlook for China’s growth for 2020 to 5.2% from 5.8%, but believe the policy response and signs of stabilization in activity should limit further downside.

From a market perspective, the S&P 500 has just experienced its first 3% moves of 2020. While this is highly uncomfortable, it is not unprecedented (the S&P 500 experienced six moves of 3% or more in 2018). Consequently, we continue to believe the most appropriate strategy is to remain invested and remain focused on strategic asset allocation, with an eye toward risk management, as episodic volatility may continue.

The economic and market forecasts presented herein have been generated by GSAM for informational purposes as of the date of this presentation. They are based on proprietary models and there can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of this presentation.

General Disclosures

All investments contain risk and may lose value. Equity securities are more volatile than bonds and subject to greater risks. Small and mid-sized company stocks involve greater risks than those customarily associated with larger companies. Investments in fixed income securities are subject to the risks associated with debt securities generally, including credit, liquidity, interest rate, call and extension risk. Although Treasuries are considered free from credit risk, they are subject to interest rate risk, which may cause the underlying value of the security to fluctuate. Below investment grade (high yield) bonds are more at risk of default and are subject to liquidity risk.

An investment in real estate securities is subject to greater price volatility and the special risks associated with direct ownership of real estate.

Emerging markets securities may be less liquid and more volatile and are subject to a number of additional risks, including but not limited to currency fluctuations and political instability.

High-yield, lower-rated securities involve greater price volatility and present greater credit risks than higher-rated fixed income securities.

The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.

There is no guarantee that objectives will be met.

The views expressed herein are as of February 28, 2020 and subject to change in the future. Individual portfolio management teams for GSAM may have views and opinions and/or make investment decisions that, in certain instances, may not always be consistent with the views and opinions expressed herein.

Views and opinions expressed are for informational purposes only and do not constitute a recommendation by GSAM to buy, sell, or hold any security, they should not be construed as investment advice.

THIS MATERIAL DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION WHERE OR TO ANY PERSON TO W HOM IT WOULD BE UNAUTHORIZED OR UNLAWFUL TO DO SO.

Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. We have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources.

Confidentiality

No part of this material may, without GSAM’s prior written consent, be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorized agent of the recipient.

© 2020 Goldman Sachs. All rights reserved. Date of first use: 2/28/2020. Compliance Code: 195713-OTU-1145574

GoldmanSachsAssetManagement |4

Let’s Talk About it…

Many college graduates face a tough decision early in their working lives: pay off student loans or save for retirement. It’s a financial tug of war between digging out from debt today and saving for tomorrow, both of which are very important goals.

Recent graduates might enter the workforce with little more than their diplomas and student debt averaging about $37,000.¹ This equates to a monthly payment of $392, assuming a 5% interest rate and standard 10-year repayment term. (For reference, the 2018–2019 interest rate for undergraduate federal Direct Loans is 5.045%.)

As young adults adapt to living on their own, they must juggle their student loan payments along with other financial obligations such as rent, food, and transportation. Let’s face it, putting aside money now to use in four decades may not seem compelling when loans require immediate attention.

The typical repayment term for student loans is a long 10 years. Waiting until loans are fully paid off before starting to save for retirement can mean missing out on years of potential tax-deferred growth in an employer-sponsored retirement plan or an IRA. If your employer offers a match, consider contributing the minimum amount to get the match, then try to increase your contribution amount as you can.

The one thing young adults have on their side is time, and that time is valuable on the retirement front. Consider two adults: One starts saving $300 a month toward retirement at age 25 for 10 years, and the other starts saving the same amount at age 35 for 10 years. After the 10 years, assume the money simply sits in the account until they reach age 65, earning a 5% annual rate of return. Both adults have contributed the same $46,585 amount, but at age 65 the 25-year-old would have $208,130 and the 35-year-old would have $126,368 — a difference of more than $80,000. (This is a hypothetical example of mathematical principles and is not intended to reflect the actual performance of any specific investment.)

What about paying more toward student loans each month to pay them off faster versus contributing those extra funds to retirement? If the interest rate on a student loan is relatively low, the potential long-term return earned in a retirement account may outweigh the benefits of shaving a year or two off student loans.

Realizing the dilemma that many young employees face, a handful of employers are offering student loan benefits, such as a specific amount toward student loan payments or an enhanced retirement plan match when employees contribute a designated percentage of their salaries toward repaying student loans.² Watch for these benefits to grow in popularity as student debt impacts an increasing number of young workers.

1) MarketWatch.com, May 12, 2018
2) Employee Benefit News, July 5, 2018

This information is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2018 Broadridge Investor Communication Solutions, Inc.

Unless you’ve been hiding under a rock, you could not have missed the headlines regarding the recent college admissions scandal. Actresses, business leaders, and other wealthy parents have been charged with college entry fraud. I think it’s actually quite ironic if you think about it. If you have to cheat to be admitted to a particular school, you probably don’t have the credentials to maintain the academic rigor of that particular college or university. I wonder if the parents who committed college entry fraud ever considered whether the school they cheated or bribed their child’s entrance into, was really the best fit for the child. Did their egos take precedence over rational thinking?

I believe God has a plan for all of us. I also believe he blesses hard work and perseverance. On the other hand, I’ve never heard of a success story from someone who cheated their way to the top. Cheating or lying always unravels at some point. This story is an example of how cheating, bribery, and lying eventually brings disgrace to the guilty party. It also causes unnecessary embarrassment and leaves people with emotional scars for the rest of their lives. Friends, it’s just not worth it.

I hope this sensationalized scandal actually reduces the pressure valve that many parents feel to help their children get a college education, no matter what the cost. I hope it reminds parents that cheating and lying will never benefit them or their children in the long run.

Another issue this story brings to light is the financial pressure on parents to pay for the rising, and often unaffordable, cost of tuition at elite universities. Some parents are sacrificing their sanity and their retirement in order to make sure their children have a prestigious college education. The reality is, there are many ways to obtain an education. Parents, please pause and consider the following:

• Your kids can work simultaneously while attending classes at a university. This may also allow them to get practical real-world experience.
• Do not overlook the opportunity to research the plethora of scholarships and grants available today to your children.
• There is no shame in attending a trade school if your child needs specific skills for their desired profession. Examples include culinary school, cosmetology school, dental hygiene and some nursing programs, graphic design, welding, electrical, plumbing, and a computer technician.
• Many trade professions would allow your child to be self-employed and own their own business.
• Consider enrolling your child in a community college for a couple of years in order to get basics out-of-the-way at a fraction of the cost.
• Encourage your kids to live at home in order to avoid expensive fees for dormitories, or rent for an apartment.
• Attend in-state universities rather than private, or out-of-state schools.

There are many ways to obtain an education without breaking the bank. Just like the cheating scandal, sacrificing your future financial well-being during your retirement years, ultimately ends up punishing the child you were trying to help. If you don’t save and prepare for your retirement years, you most likely will become a burden financially to your adult children.

In a perfect world, you would start saving in your 20’s or early 30’s, and prepare for both financial goals. Parents would have a savings plan for future education expenses for their children, and would also be steadily and systematically saving for retirement. That is the best case scenario. However, many people do not have this luxury.

If you have to choose between saving for college for your children and saving for your own retirement, please choose to save for retirement.

Remember that your teenager or young adult in their 20’s has time on their side. If they have to get a student loan, they have many years to work and repay the loan. However, please discuss options with your kids about different avenues for obtaining an affordable education. Remind your children that it is beneficial to both of you for their parents to have financial security in the future. That is the best possible outcome. For more information on how to best plan for your future, please visit me at: http://www.emilygstroud.com #FaithfulFinance

What if you and I are not actually broken or damaged?

What if God designed us perfectly to do His work? I’ve wrestled with this a lot over the years. What if God designed us uniquely and perfectly, flaws and all, for the specific purpose He has for each and every one of us?

In today’s age, personality differences may be labeled “mental illnesses” or something to be fixed. Over the years,  I’ve been labeled emotional, anxious, an insomniac, a workaholic, a Type A personality, a 1 on the Enneagram chart, highly intelligent but quirky, eccentric, OCD, and I’m certain other labels I would rather not know about it.  I’m also passionate, I love God, and I enjoy solving problems and helping people transform their lives from a financial standpoint. I love deeply and fiercely, and I fight until the end.  I rarely give up.  I go down swinging.  I give life everything I have. I’m all in.  It doesn’t matter what subject we’re on: parenting, my marriage, friendships, real estate transactions, businesses I own and manage, books I write, or other projects I entertain. I give life, my family, and my work everything I have, even when it affects my health.

The older I get, the more comfortable I am in my own skin. 

What if we’re not actually broken or wired incorrectly?  I used to wonder why I couldn’t sit still.  Why was I never content with the status-quo?  Why was I happiest when working on a project?  Why did I have trouble sleeping at night but needed a nap during the day to function at my highest level?

I’ve been to therapists and physicians to figure out what is wrong with me.

You know what I’ve learned?  This is me.  And maybe it’s you too. My brain works over time. I analyze everything. I’m honestly not afraid of trying new things if the potential reward justifies the risk.  Sometimes things don’t work out.  But sometimes they do!  I love closing a deal, negotiating a transaction, and selling a dream.  I come by some of these traits naturally.  Nobody in my immediate family has a regular 9 to 5 job.  It’s just not how we are wired.  That doesn’t mean we don’t work hard. Trust me, we work extremely hard and we have multiple projects and balls in the air at most times. We just have to be our own boss because we’re entrepreneurs by nature.  It seems to be passed down from generation to generation in my family.  Honestly, we’re all probably manic and great candidates for a psychological study. The good news is that it really doesn’t matter.

What if what we thought was our “crazy” was actually how God made us to do His work in such a time as this? 

Maybe there’s nothing wrong with me at all.  Maybe there’s nothing wrong with you either.  Maybe you’re more even-keeled than I am. I admire you and I know that you’re steady and exactly who God designed you to be. The body of Christ is made up of all kinds of personalities. I honestly believe that is His perfect design. There is such peace in knowing we are not designed by accident. 

How would our lives change if we accepted ourselves and others exactly as we are?

I’ve been researching and studying this phenomenon more and more lately. It’s like when you buy a red car and suddenly you see a red car everywhere you go. Entrepreneur magazine recently wrote an entire article about this exact subject. The article claims: “There is a dark brilliance of an entrepreneur’s brain. The exact qualities that label them as crazy, allow them to persevere against all odds, to do amazing things in unique ways that end up changing the world.”  Interesting, huh?

What if each type of “mental illness” had a positive side?

Another example of this phenomenon is dyslexia, which is classified as a mental disability.  Dyslexia has also touched a member of my family.  A teacher recently told me and a group of parents to stop asking God to change our child and take away his or her dyslexia. Instead, change your personal paradigm. Start seeing and believing that dyslexia is a gift.  It’s how God wired your child and the very quality that will shape them into the human being that will go farther, higher, and wider than you ever thought possible.

Dyslexia causes a lot of problems when learning to read. However, it allows a person to see the world through a different lens. Dyslexic people are often entrepreneurs, engineers, inventors, and creative types that make a difference in the world that those of us who are not dyslexic will never get to experience.  Interesting, huh?  What could be seen as a disability is actually a super power. Sometimes our ability to look at life from an upside down and backwards perspective changes us and changes the world in a positive way.

What if your mental illness, disability or challenge was actually not an illness to be cured?

If you truly believed this, how would it change you?  How would it change your family?  How will it change the world?  I would love to hear your thoughts today.  If you have ever wrestled with wondering whether or not you were broken or “not quite right,” please know that you are not alone.

To illustrate my point further, Faithful Finance was born out of a place of “crazy.” To be honest, it was highly unlikely that anyone would take me seriously. You know what though, they did.  It took a lot of time and a lot of work, but eventually a little East Coast publishing house called Zondervan Publishers took it very seriously.

I was and still am, a no-name, female, wife, mother, and Financial Advisor from Texas.  However, I wrote a nationally published book explaining Modern Portfolio Theory, while simultaneously reminding people that a relationship with Jesus Christ is the best life insurance policy. More than likely, if God had designed me with a non-manic, more passive, even-keeled personality that slept better, I would never have entertained the idea of writing Faithful Finance. Please do not misunderstand me.  I’m not bragging.  I don’t take credit for God’s plan for my life. I’ve just tried to be obedient to the special purpose He has for me based on how he designed me in my mother’s womb. My personality has not changed since I was born. I want to encourage you to do the same. Figure out who you are and embrace it with passion and enthusiasm.

Today, I’m excited to let you know that Faithful Finance is coming out with a FREE online workbook just in time for the new year. I want to equip my readers with tools that can help them and their family, personality differences and all, to manage money wisely. By managing your money well, you can live a more fruitful and peaceful life. Stay tuned for more information and announcements coming soon.  #FaithfulFinance