The journey to achieving your long-term wealth goals follows a road that is not always smooth, clear, or 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.
COVID-19 and the world’s reaction has impacted the global economy in ways no one anticipated. As a result, the first quarter of 2020 has seen record-setting contraction. Unemployment claims jumped to over 10 million in two weeks marking the largest weekly increase in unemployment claims on record two weeks in a row. Naturally, investors priced all this news into the value of stocks, and in Q1 we saw the S&P 500 Index drop 19.6% and small US companies, represented by the S&P 600 index, drop in value by 32.64%.
We don’t know the duration or the extent to which the uncertainty surrounding the COVID-19 coronavirus will affect financial markets. But we do know, at some point, there will be clarity and the fears surrounding the virus will dissipate and markets will react accordingly. Financial markets are incredibly 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 is reflected 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. Some of you may be tempted to abandon your investment plan and park your investments in cash until the outlook is clear. However, markets can move up just as quickly as they move down, with no clear indication 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.
This graph is such a powerful illustration of the danger in trying to time the market. Missing just a few days in the market can drastically impact your portfolio’s overall performance. Remember, it’s “time in” the market, not “timing” the market, that yields great returns.
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 enough reason for
concern right now; your portfolio doesn’t need to be another one. Instead, turn
your focus to what drove your long-term financial goals in the first
place—family, friends and those in need.
If you have any questions about your investments or want to discuss your financial planning needs, please reach out. We are happy to help!