The journey to achieving your long-term wealth goals follows a road that is not always smooth, clear and free of debris. Sometimes the market and the world at large will litter our path with obstacles for us to overcome. Global markets have been experiencing increased volatility, which comes in stark contrast to the even, steady growth that we often expect.
Maybe that sounds like quite the understatement. We are well aware that heightened uncertainty may cause anxiety about your portfolio and the future. We understand. Our assets are invested alongside of our clients, and we are not spared the volatility.
With our years of experience, we know a disciplined investor looks beyond the concerns of today to the long-term growth potential of markets. Investors have had concerns and challenges in the past, and they know there will be concerns and challenges in the future.
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We have now entered what finance professionals define as a bear market, wherein both the U.S. and world equity markets collectively fell more than 20% from their most recent highs. Many investors have seen this magnitude of a market drawdown before.
We can see from the chart above that good times for the market have been disproportionately longer than bad times, and the duration of the bull run is not a useful indicator of future performance.
But what can help in times like these is knowing our preparation for this scenario. Your portfolio should be a custom vehicle assembled to achieve your long-term wealth goals. Besides U.S. stocks, it is likely composed of high-quality bonds, non-U.S. stocks and other diversifying assets to act as shock absorbers that will not only dampen short-term volatility but help prevent harmful, emotionally based investment decisions. And by design, bonds and other diversifying assets experienced positive returns or less severe declines than U.S. stock markets in recent weeks.
In today’s market environment, it is more important than ever to remain disciplined to the long-term investment plan that you put in place. We as investors have been through troubling times before, and survived, even thrived.
When you choose to establish a diversified investment portfolio, you should have done so expecting markets to experience sizable declines along the way. In fact, you should expect the U.S. stock market to experience a 15.5% decline intra-year once every year on average, with more severe declines occurring every other year. Portfolios should be built with, and you as an investor should have, these expectations.
We don’t know, nor does anyone know, the duration or the extent to which the uncertainty surrounding the COVID-19 coronavirus will affect financial markets. No one does. If they say they do, they are lying to you.
What we know, at some point, is that there will be clarity amongst the chaos eventually, and the fears surrounding the virus will dissipate and markets will react accordingly. Financial markets are efficient at pricing in news—good or bad—and the reaction can be swift. However, reacting on news is like driving forward while looking in the rearview mirror; news reflects in prices almost immediately, so navigating based on what is behind us has no value.
It might be days, weeks or possibly months before the fears subside, and the news over that time may get worse before it gets better. Your family members, coworkers, or friends may consider abandoning their investment plans and park their investments in cash until the outlook is clear. You too may have these same thoughts. It is normal.
Markets can move up just as quickly as they move down, with no clear sign of when you should get back in. Missing these up moves can be the difference between achieving your most important investment goals and failing to reach them in the time you planned or even altogether.
During volatility, take comfort in knowing that history has shown markets are resilient and continue to grow over time, despite short-term declines. Further, we understand the world is providing plenty of reason for concern right now; your portfolio need not be another one. Instead, turn your focus to what drove your long-term wealth goals in the first place—family, friends and those in need.
During a crisis, we all want to do something, not just sit idly by watching things unfold. These 16 Things You Can Do to Prepare for the Next Recession is a good place to start.
If you have questions about your own situation, or want to further discuss your financial planning and investment needs, please reach out.
Life is uncertain. The market is even more precarious. This means building wealth has no shortcuts. Success requires a solid investment approach, a long-term perspective, and discipline to stay the course. Instead of leaving your financial future to chance, you need to have a plan.
Cogent Strategic Wealth is here for you.
So, instead of worrying about your future, why not take positive steps to protect it? Set up a Cogent Conversation with us today. We’ll show you how to transform your hard work into durable wealth even through troubling markets.
We are here for one reason: to help you reach your financial goals, come what may. Contact us today so we can help you, too.
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