I have had many conversations over the last few weeks and continue to hear the claim 'this is different'.
How the Coronavirus outbreak has virtually stopped our sense of normalcy is certainly different. I have never seen major cities turn into ‘ghost towns’. Anxiety levels are reaching all-time highs, while we are getting hit with the fear of losing our health/wealth on top of a potential travel lockdown. In 2001 through 2002 and 2008 through 2009, we could gather together and share a laugh to release some stress. Now is different, as we are experiencing a loss of connection within our communities and the strain of long-distance family relationships. I don’t underestimate the angst of isolation from loved ones.
What is not different is how we should respond to the economic downturn. Fear-based decision making during a financial crisis is always a mistake. It has historically been a losing action every time. This is true in the stock, bond and all other capital markets. There is an individual or institution on every side of a financial decision; the one that is negotiating out of fear or under duress loses every time. This economic environment is not different in terms of how you win or lose long-term. The headlines will continue to use ALL CAPS and frighten us on virtually all fronts, until they don’t. When fear dissipates, the markets will begin to revert to the mean and advance. They will also continue trading at unpredictable levels over the short term. When we get the reversal, if investors are not in a balanced strategy, they won’t have time to participate on the upside.
We develop financial strategies that plan for corrections, bear markets and recessions. It is why we obsess about predictable cash flow and balance in a portfolio. The time to liquidate equities or bonds is when it is quiet, and others are complacent. This strategy is undefeated throughout history. It is simply proactive planning and not reacting to global stress, regardless of the next ‘black swan’ or unforeseen event.
There is no question this is an unsettled time. The global attention and unprecedented shutdowns will have lasting economic and social impacts. We are confident in our strategy and appreciate all who have entrusted us as their advisor. I have added a 40-year perspective below to paint a visual picture of how markets have reacted after pullbacks. It’s not a shock to see that during that stretch of time, we have received average returns of 8.9% and 75% of annual returns are positive. The uncomfortable part is that an investor needs to experience both market expansion and decline to benefit.
We are thinking of you and your family during this chaos and know that each passing day brings us closer to joyful times ahead.
Stay Safe and Be Well,
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.