Weathering the economic downturn
The decade-long economic expansion that started after the Great Recession in the latter half of 2009 entered 2020 already looking rather tired and worn, with economic indicators steadily losing steam. COVID-19 was the catalyst that brought a sudden end to one of the greatest economic expansions in modern history – and its effects will likely be felt for some time. It’s a difficult time to be an investor, but there are things you can do (or not do), while looking forward to the inevitable recovery.
Positive signs
The U.S. S&P 500 Index reached an all-time high on February 19. Since then, markets proceeded to fall over 30%, hitting their most recent nadir on March 23. Encouragingly, markets have since stabilized, even recovering a good portion of their steep losses. Whether this stabilization will hold in the shorter term is particularly difficult to predict, as we still know so little about the virus and, therefore, the extent of its impact on the global economy. However, one thing is certain: governments around the world have worked to control the spread of the virus through physical distancing and varying degrees of economic lock downs. The length and severity of these measures will largely determine the extent of the impact to the economy – and that, in turn, will likely be reflected in stock values.
How investors can weather the storm
As always, the worst thing to do is to panic and unnecessarily abandon your well-constructed financial and investment plans. If your goals have not changed, then your plans generally shouldn’t either. However, there may be opportunities or adjustments you should consider.
• Commitment: Take the time to review your goals and financial circumstances with us. If they have not changed, your plan shouldn’t either. Re-commit to your plan, knowing that, historically, markets have always recovered in time and should continue to build wealth for patient investors.
• Calibration: That said, you may need to make some tweaks, depending on your situation. When markets are volatile and the economy is in recession, it only makes sense to consider your risk exposure. This doesn’t necessarily mean changing your plan, but simply being prudent as it relates to your equity and bond holdings.
• Quality: In times of uncertainty and economic stress, blue chip – high-quality, consistent-earning, well-established, and long-standing – companies and their stocks and bonds can provide relatively safe harbors in which to ride out the storm. Consistent dividend-payers (and even better, dividend-growers) can help, with the dividend income offsetting a lack of capital growth until the market situation improves.
While we’re all at home and doing our part to slow the spread of COVID-19, I am pleased to offer virtual portfolio reviews.