Well, that was an interesting quarter!
For anyone just emerging from a Rip Van Winkle-like slumber, you have plenty of news to catch up on.
It’s a period of time that some may tell their grandchildren about, and others may wish to never speak of again.
The economy came to a screeching halt. Unemployment went from 50-year lows to record jobless claims. Oil prices collapsed, with the biggest single day drop (25%) since the 1998 Gulf War. Stocks had the fastest 30%+ drop on record. You get the picture, and it’s not a pretty one.
However, the news is not all bad. After the plunge in stocks, the market rallied 18% to finish the quarter and another 10% so far in April. For the less mathematically inclined, that still results in a bad quarter for stocks. But we’ve erased some of the losses and the upturn in the market has certainly been refreshing.
Even in the face of abysmal economic data, stocks have moved higher. How is that possible? The market is forward looking, and market psychology can change rapidly (as we’ve seen). Apparently, the market sees enough reasons for optimism. It’s not necessarily the next few months that carry the most weight for the stock market.
Once again, we also need to celebrate the fact that bonds came through when they were needed the most. No, they did not generate sizeable gains, but they held steady to lessen the sting from a haywire stock market. They act as the ballast that provides a level of stability to a portfolio when storms arise. In many ways, they keep the financial plan afloat during times of crisis.
In pondering the past few weeks, a few idioms seemed to resonate soundly in regard to investments:
Don’t miss the forest for the trees
Stocks are a long-term asset, and the focus should be on long-term returns. Through March, U.S. stocks have averaged more than 10% annually over the prior ten years – including the recent drop. A decade ago, given an opportunity to “lock in” 10% per year from stocks, most of us would have gladly agreed. It wasn’t smooth and easy, but it’s not supposed to be.
There’s no such thing as a free lunch
Higher returns are compensation for taking on higher risk. The reason stocks tend to pay off in the long-run is because they can put us through a mighty wild ride in the short-run.
If you can’t stand the heat, get out of the kitchen
This is not advice. However, it’s safe to say that owning stocks will subject us to some pretty stressful times, and it’s something to be carefully considered well before things get “too hot.” Your kitchen (asset allocation) was designed to accommodate a level of heat (market swings) that you can reasonably accept. The kitchen may get uncomfortable at times, but with the proper design, it shouldn’t become unbearable for you. (Tortured analogy? Yes. But these are
Slow and steady wins the race
. Going “pedal-to-the-metal” with a heavy stock allocation can be disastrous. It’s natural to want to “step on it” by adding stocks when the road seems nice and straight (as a few clients requested last year –
you know who you are
. 😉) But an unexpected hairpin turn like a pandemic can cause an overly aggressive financial plan to crash and burn. For what it’s worth, boring and stodgy bonds have now outperformed the broad stock market over the past three years. Don’t count out the old, steady, reliable tortoise.
Extreme market fluctuations are always unsettling for everyone involved. Although we know it’s not particularly unusual, that doesn’t make it any more pleasant to endure. Please let us know what questions or concerns are on your mind.
It is our hope that many positives come from this remarkable time in our lives. It’s an opportunity to reevaluate priorities and refocus on what is truly important - where we focus our efforts, and how we use our time, money and resources. Perhaps a global pandemic can be a catalyst for great good, for all of us individually and the nation as a whole.
Let us know your questions and how we can assist you.