With the seemingly sudden arrival of the coronavirus that caused the disruption across most facets of our lives, the year 2020 is already one that we will not forget, especially from a financial perspective. It seems like ages ago that we watched Joe Burrow lead the LSU Tigers to an undefeated and historic championship season just before the football world witnessed Patrick Mahomes and the Kansas City Chiefs come from behind to win Super Bowl LIV.
The worst global pandemic in recent memory has disrupted the global economies and labor markets. But it is no secret that the coronavirus has also disrupted the routines of high school, college and professional football teams everywhere. Classes, recruiting, team and position meetings, draft preparations and selections, and even workouts are now being conducted virtually. These times are certainly unprecedented.
Likewise, the panic and fear from the pandemic has taken its toll on the financial markets. With a return of -19.6% in the first quarter of 2020, the S&P 500 representing the 500 largest publicly-traded companies in the U.S. recorded its worst quarter since 2008 and its worst ever start to a year. Developed International Equities, Emerging Markets Equities, and Commodities each sold off by more than 23%. On the flipside, investors with high-quality, investment-grade bonds in their portfolios were rewarded with a positive return of over 3%. So, diversification worked for some investors, but the panic in the markets whipsawed most stock market investors with record-setting volatility.
Chart 1: Asset Class Returns
While the recent market crash has been swift and fierce (and it may not be finished), there is precedent for optimism. The S&P 500 has corrected 25% or worse 11 times since 1929. On average, equity markets have recovered their losses in an average of 50 months. In every one of those previous 11 market crashes, the subsequent 3-, 6-, and 12-month returns have all been positive. Much like a disciplined team who faces adversity but remains focused on its way to a great or even title-winning season, disciplined investors have reason to be hopeful that their investments will also prevail and their financial planning goals will be achieved.
Chart 2: Historical Data Suggests That Markets Will Recover
The Playbook For Financial Investing During Turbulent Times
1) Stay Invested
You may be anxious about the decrease in the value of your investments. But don’t be tempted to move out of the market, sit on the sidelines and wait for prices to rebound. Trying to time the market could potentially jeopardize your financial strategy — and your future goals.
2) Continue Contributions
It may not seem intuitive, but continuing to contribute to your retirement plan — even during market downturns — can potentially enhance your returns over the long-run. A down market can be an opportunity for you to acquire more shares of your investments at a lower price. Consistent investing through market ups and downs is called “dollar-cost averaging.” If an investment’s price is high, you buy fewer shares, or units. When prices are low, you buy more. Investing regularly, using dollar-cost averaging, can help reduce the risk associated with buying during big swings in market prices.
3) Maintain A Long-Term Focus
Any investment decisions you make should be based on your financial goals and objectives, time horizon and risk tolerance, rather than concerns about market volatility. Even if the market seems volatile, remember that ups and downs are normal. It is important to stay focused on your financial future and refrain from making short-term decisions on long-term investments.
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While market events are out of our control, we do have control over our financial objectives and how our investments are allocated to help us achieve them.
Chart 3: Over the Long-Term, S&P 500 Has Grown Despite Negative Events
If you’ve ever heard the saying, “Don’t put all your eggs in one basket,” then you already have a basic understanding of diversification. Diversifying your portfolio can reduce risk and volatility. Review your account and make sure your portfolio is not too heavily weighted in any single asset class.
If you are not sure if your investment portfolio is positioned to recover properly after this sudden and severe market correction, please do not hesitate to reach out. Our team is happy to coach you through some fundamental action steps and to offer perspective on how this generational event may impact your long-term financial and retirement planning.
In the meantime, keep yourself, your family, and your team safe and healthy.
About the authors:
Matt Kuerzi, Vice President and Financial Advisor, and Keith Norris, First Vice President and Financial Advisor, comprise The WNK Group at Morgan Stanley in Louisville, Kentucky. They have a combined 40 years of experience helping families with their financial planning (1). In 2019, Matt was recognized by Forbes in their first ever list of “Best-In-State Next-Gen Advisors”. He can be reached directly at (502) 394-4094 or email@example.com.
(1) Keith Norris, First Vice President, Financial Advisor, experienced in the financial services industry since 1997. Matt Kuerzi, Vice President, Financial Advisor, experienced in the financial services industry since 2002.
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