In these moments, our most important job at Total Wealth Planning is to ensure our clients continue on the appropriate course with their investments. Doing so will help to ensure that goals such as continuing to meet current living expenses, retirement and college savings, wedding plans, and others are kept on track. By continuing to stay disciplined and by maintaining the investment approach we have structured, the chances of attaining these goals will go up dramatically. Those who do not continue will likely need to delay their goals for years, if not longer.
This may be the most important email you receive from Total Wealth Planning. Forecasts suggest COVID-19 and the resulting economic impact could get worse before it gets better. As challenging as these times are, however, this is also the most critical time to maintain the current structure of your investment portfolio. The investors who are most likely to see their portfolio values fully restored within a reasonable period of time will be those that can continue to maintain the discipline of holding on to their current investments, and not sell. Without a doubt, there will be many investors who cave in to the pressure and will sell at the worst possible time. These investors will most likely not participate in the recovery when it occurs and they will be the collateral damage of this market decline.
There are examples in history where markets have experienced dramatic declines, from which we can draw useful comparisons. One of the most severe was in the year 2000, when the NASDAQ index (an index comprised mostly of technology stocks) dropped a whopping 76.81% from its high on March 10, 2000 until it hit bottom on October 4, 2002. It took over a decade for that index to recover. Again in 2008, most major stock market indexes dropped 50-60% in value and took 6-8 years to fully recover. By comparison, an appropriately diversified portfolio was able to recover in both of those circumstances within a year or two. Importantly, in the meantime, the underlying investments generated the necessary income for retired investors while allowing for resilient growth for investors who were trying to meet other savings goals.
Although we had no way to foresee this decline, we were prepared for this type of market event. While other investors often focus on generating the highest rates of return, we continuously strive to provide competitive returns while focusing on mitigating risks. For this reason, we consistently maintain a significant weighting to the bond asset class. Most important, we have always focused these holdings in low risk, short-term, high quality bonds. The result is that these holdings help to mitigate volatility that would otherwise be experienced. Furthermore, with bonds providing stability to the portfolio, there will be no need for our clients to tap into their stock investments for several years. The end result, just like in 2000-2002, as well as in 2008-2009, portfolios will be restored much more quickly than they would otherwise.
Understandably, it would be much more comforting if we knew when the markets would rebound. With measures underway by the government to stimulate the economy, along with multiple efforts by scientists to find a way to reduce or eliminate the impact of the virus, it is possible that we are at the cusp of a recovery. However, the uncertainty may continue for a while longer. We have no way of knowing how quickly and how significantly these measures may help to improve things. We know attempting to time the markets is always futile and has consistently proven to be a fool’s errand. A recovery will happen at some point, though, and when it begins, it will likely happen quickly and dramatically. Looking back over the last few weeks, anyone who may have suggested that markets would fall to these levels this quickly would have sounded delusional, especially since the economy had been experiencing tremendous strength. A decline has nonetheless occurred. It bears repeating, investors who do not stay the course will mostly likely not participate in the recovery when it occurs and they will be the collateral damage of this market decline.
We have your best interests at heart in order to keep your financial health in order. We ask that you keep yourself and your loved ones safe and in good personal health during this time.
If you are not a client of Total Wealth Planning, and you would like additional information about our firm, please do not hesitate to contact us.