2020 has been rife with volatility. In my March update I remarked that great days are ahead of us - and while it's been a bumpy ride since then, when tough times hit, the opportunities to learn are plentiful.
Let's take a look at what's happened so far and then address what we could see in the remainder of the year.
Script
Hello, I’m Doug Pardieck with Talon Wealth strategies with our headquarters in Littleton CO. We offer full financial planning services, including life insurance, disability insurance, and long term care solutions.
I shot my last Market Update video on March 13 and I finished by saying “Great days are ahead of us. Take a deep breath and have faith in the plan. Everything will be fine.” Here we are ½ way through 2020 and what a year it has been. Think of this as half-time. Now is a good time to sit back and reflect on what just happened and learn. When tough times hit, there is opportunity to learn and this time is no different.
Let’s take a look at how the markets have fared during this current crisis. Let’s start with a slide I presented back in late March. It shows us the quick and deep drop in the stock market during the months of February and March. In fact, the 34% drop was the quickest since 1950. All investors likely experienced some level of fear and anxiety. I released my quarterly market update in mid March and I gave reasons for optimism, but also some historical perspective. No one had any idea when the market would rebound… but it has.
The next slide show the returns from April 1st through July 8th. It shows the performance of an unmanaged index representing the S&P500. While there has been volatility, the market has roared back. The market bottomed on March 23rd, right in the middle of the chaos and panic. We should notice that the best days usually follow the worst days. In my opinion trying to TIME the market, selling to avoid future losses and then jumping back in before the prices jump back up again is nearly impossible.
Next, let’s look at the performance from the beginning of the year. The market has nearly recovered from where it started on Jan 1st.
Now look at the last 5 years for perspective. This is a good reminder that stocks can be a very good investment over a longer period of time. However, I don’t think it’s a good idea to use stocks as an investment for your short term goals.
I love this slide and I will refer to it more often. Notice that we are looking at 4 different time horizons. Within each time horizon 3 different allocations are represented: All stocks in green. All bonds in blue. And a 50/50 allocation in grey. This data goes back 69 years. In the 1 yr time horizon, stocks have experienced significant drops, but over a 10 year period they fare much better. Focus on the 5 year period. In 69 calendar years, a 50/50 allocation has never had a negative 5 year period. Our Bucket 2 is for spending in 6 years and this chart would suggest some exposure to stocks might be appropriate. But keep in mind, previous investment performance is no guarantee of future returns.
Let’s review some of the lessons we can learn from the first ½ of 2020.
Our financial planning system for using Buckets works. Buckets allows you to take withdrawals from very conservative investment, not from volatile investments like stocks. Buckets also allow you to get exposure to stocks in portfolios you will not touch for 10 years or more.
Have a fully funded Bucket 1 or NOW $$. To determine how much goes into your Bucket 1, please contact us and schedule a time to talk. Again, distributions from your portfolio shouldn’t come from volatile investments.
TIMING the markets is not a successful strategy. Have a good strategy, buy quality, and rebalance on a regular schedule.
As we enter the 2nd half of 2020, where do we go from here? First, let me start with the headwinds. 1) The election is coming and this can increase volatility in the markets. 2) Tensions between China and the US will likely pick up and this has shown to create additional volatility in the markets. 3) A second wave of COVID is very likely to occur. The infection rate has already picked up significantly- the warmer weather has not stopped the spread. This creates a good amount of uncertainty as we head into the Fall. I want to show you two additional slides. The first slide shows two lines. The blue line show the daily confirmed cases- which have dramatically increased over the last month. However, the dark grey line shows the daily fatalities and they have significantly declined since their peak in April. We hear from the experts that the fatalities lag the new cases by 14 days or so. We will continue to watch the data on a daily basis.
This next graph comes from the COVIDtracking.com website. It also shows the steady decline in deaths due to COVID-19. This is encouraging, but as the number of new cases climb, it will be important to update this graph in 2 weeks.
Let’s talk about the tail winds: First of all, the economy is recovery from the very short, yet very deep economic recession. Jobs are coming back. People are beginning to travel. Consumer spending is picking up. It may take 12-24 months for the economy to fully recover, but the recovery is beginning. There is a healthy pipeline of therapeutics and vaccines in trials. Innovation in the healthcare sector will eventually be successful and we are already seeing signs of it.
The money supply has shot up tremendously. Business and individuals are sitting on a lot of cash…. And there is pent up spending that will eventually be unleashed. This will be a huge shot in the arm for our economy. This will be great news for stocks. Once there is a very effective solution to COVID, we think all this economic activity will full kick in. Remember, for your stock portfolio, you must look beyond the current crisis and be patient.
Well, I am out of time. I could go on and on, but I will stop there. If I can be of service to you, your friends, and a family member, I’d love to help. My job as a financial advisor is to coach and educate.
Again, my name is Doug Pardieck and I can be reached at 303-951-5987. Have a wonderful week!
These opinions of Doug Pardieck are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized advice. Indices mentioned are unmanaged and cannot be invested into directly. Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Talon Wealth Strategies are not affiliated.
Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Talon Wealth Strategies are not affiliated.