We are living through an unprecedented event. Schools, businesses, and parks are closed. People are stuck in their homes and are unable to visit friends and family. Children are being taught in virtual classrooms. Life itself and every aspect of life is challenged. This situation, just like the Covid-19 virus, is unique…however we can look to the past for perspective.
Oil & Gold – In the early 1970s people believed the dollar was backed by gold. In 1973 the system collapsed and people had to make a mental shift that money holds value because we all agree it does. Our economy was dependent on foreign fuel when OPEC stopped shipping oil to US in 1973. This caused inflation and forced people to wait for hours in line just to get gas. Then the world changed, congress passed fuel efficiency rules and we, as a country, came to the realization that we needed more energy independence. These life lessons have forced us to be better prepared and rethink our systems going forward.
WWII – During WWII, it is not that people didn’t have money to spend, but rather that they had nothing to spend it on. Back then, people were pulled from the economy to go to or contribute to the war. In 1937 the market dropped 35%, then went up, then back down for many years. Cities were being destroyed, 70-85 million lives were lost, yet from 1942-1945, the market returned 20% per year during the darkest days of a generation. The dollar doubled from the beginning to the end of the war. Companies will find a way to be profitable. An extreme example, if they cannot make cars, then they will make tanks. Markets are resilient, because companies are resilient, because we are resilient.
Home – Another way to think of the stock market is like your house. The daily price movements are not meant to be watched every day. It doesn’t matter what those daily price movements are, what matters is the long-term outcome. We are all bombarded by market news, notifications we didn’t ask for, and relentless media noise. When emotions are high it is easy to let them cloud your judgment. It is okay to feel the way you do, but be sure to disentangle your emotions from your investment decisions. We as your financial advisor and friend are here to help you along the way.
Global Diversification Matters – Last decade the US market did better, the previous decade the International market did better. So far in 2020 the US is not in the top 10. China had the best 1st quarter in 2020. As of now, Denmark is #1, followed by China.
Stock Market Big Picture – For every seller, there is still a buyer. For every pessimist, there is an optimist. There is no universal agreement on where the market is going. Continuous adjustments are made based on new data.
Bear markets last longer than bull markets, but many bull markets experience a 20% decline every 8-11 years. This is to be expected, it is the price of admission.
When the now overwhelms you, look to the future. The market is likely to recover before the “smoke clears”. 2009 was the worst year of the recession, but then the market went up over 25% before the recession was over.
Markets are choppy and have a huge range of volatility within a year, with a historical average of a 9-10% return, but these actual returns rarely occur. Historically after a 20% decline, the 1 year average return is 14.21%, 3 year return 11.58%, and 5 year return of 11.76%.
There can be a strong appeal to market timing but it is a fallacy, as one needs to make two right decisions….and just when the stress of being in the market is too much, remember being out of the market can be just as painful!
All we can do is take care of ourselves and those around us…so we go back to the process, rebalance your portfolio when necessary, harvest losses, and make sure short- term cash flow is met. We are all here for you, please continue to reach out and we’ll get through this together.