I was talking to one of the advisors in our office yesterday morning as we both watched the market implode on itself. He asked me, “What am I going to tell my clients?”. I answered with a question – “What do you always tell your clients?”
I wasn’t trying to be trite, and I certainly meant no disrespect. Days like yesterday are hard when you are an investor – they are hard for clients who want assurance that things are going to be alright, and they are hard for advisors who desperately want to give that assurance but struggle to confidently and faithfully find any to give. But, hear it from me. Everything is going to be alright.
People are surprised to find that we have seen market volatility and down days like this before during the bull market that started early in 2009. August of 2011 was particularly volatile. Figure 1 below shows a two week stretch of daily returns for the S&P 500 during that time. Look familiar? I probably don’t have to remind you what the market did from that point on till today – spoiler: it went up. I cannot even fully remember what was occurring during that time period that caused the turmoil. Threat of a government shut-down and debt-ceiling cliff seem to stick in my brain. And, I have a feeling that 9 years from now we will not remember when exactly coronavirus was a thing…if we remember it at all.
This is not to say that there are not real worries about the health of our global community and the short-term impact on the global economy. These are real issues and threats that we should be taking seriously. But, we should also have a little faith in our health institutions that they will find a solution to the coronavirus – they are better equipped today to deal with pandemics than they were even 20 years ago. We should have a little faith in our governments – flawed though they are – to work together to combat the economic impact. And, we should have a little faith in the proven human capacity to endure, create, and innovate in the face of challenges. If we do that, days like yesterday only present opportunity.
Remember these proactive steps you can take during periods of market volatility and uncertainty:
- Rebalance – sticking to your long-term investment strategy does not necessarily mean you “set it and forget it”. Occasionally revisit your portfolio allocation – especially during periods of market volatility – to ensure that it has not strayed too far from your long-term allocation target.
- Focus on Diversification – remember that your portfolio is probably not 100% exposed to the stock market, any one investment position, or any one industry. So, when the stock market is on its way down focus on the part of your portfolio that might be doing the opposite, like the fixed income part of your portfolio. Moving to a 100% position in cash or fixed income is not diversifying.
- Look at your Long-term Financial Plan – your plan should focus on long-term goals with provisions for short-term needs. If those short-term needs are met do not sacrifice your long-term goals due to short-run issues.
* S&P 500 data collected from https://finance.yahoo.com/
** Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. Past performance is not a guarantee of future results. This material may contain forward looking statements and projections. There are no guarantees that these results will be achieved. It is our goal to help investors by identifying changing market conditions, however, investors should be aware that no investment advisor can accurately predict all of the changes that may occur in the economy or the stock market. The Standard & Poor’s 500 (S&P 500) is a stock market index containing the stocks of 500 American corporations with large market capitalization that are considered to be widely held. The S&P 500 is unmanaged and cannot be invested in directly.