In less than a month, stock markets have gone from focusing on the capacity for economic growth to estimating the financial damage of a global pandemic. While many experts feel the impact will be relatively short-term in nature, the fear of the unknown is producing great pain for financial markets. Open-ended questions surrounding the severity and timeframe of COVID-19, along with the ultimate economic impact around the world, have caused major swings in virtually all investment assets. This event has evolved and changed for financial markets faster than any in recent memory.
As we have said before, every scenario is unique concerning the timing and severity of market declines. We do know that
long-term economic growth is what drives stock prices over time, despite short-term gyrations of the market. In past times of crisis, markets generally begin to recover well before a dire situation is over. Markets are always looking forward, and a simple decrease in bad news has often been sufficient to move markets past “peak fear” toward a recovery.
Facing continued uncertainty of COVID-19, this is a good time to reaffirm what good financial planning is all about. As you know, we help you plan for cash flow needs and factor those into your asset allocation.
For clients that are currently retired, near-term cash flow requirements are covered by short-term holdings to avoid selling stocks when they are down. Stocks are the long-term growth components for portfolios, and should always be treated as such.
For younger clients, lower stock prices imply better returns over the long run, and a disciplined rebalancing into stock holdings creates a good opportunity for future growth. Financial planning is a process of defining short- and long-term needs and developing a structured approach designed to meet them.
While periods of extreme uncertainty are nothing new, they are never comfortable. We appreciate your confidence in our team to help you navigate these challenging times. As always, we are here to answer any questions or concerns you might have.
The LPP Team