Keeping a positive perspective in trying times
Americans, along with their citizen brethren in virtually every county in the world, are faced with one of the most daunting challenges the world has ever faced. It is also a challenge that can only be seen under a microscope by a skilled physician. The COVID-19 Virus is not only infecting thousands of people; it has also effectively shut down (hopefully temporarily) much of the world’s economies. The situation is fraught with a myriad of fears: getting sick with the virus, being around people who are infected, being laid off at work, not being able to run your business, and agonizingly watching investments decline at a staggering rate.
Given all of this, I thought I’d try and share some perspective from a combination of the 70 years I have been alive, and the 47 years I have sought to help clients as their financial advisor. I have segregated these thoughts into four categories: (1) the virus itself, (2) the economy, (3) the stock and bond markets, and (4) emotional aspects of getting through these incredibly trying times.
Re: The virus itself:
- As the number of cases continues to increase, the virus remains scary. But doctors and scientists were able to break down the genome components of it very early in the process, which is critical in the eventual development of a vaccine. In my opinion, we have the best medical experts in the world all working together to beat this invisible enemy.
- While the number of cases steadily increases as more and more testing is done, the data seems to reflect that (a) the % of people recovering is very high, and (b) the overall mortality rate is getting lower except in places with very dense populations and patients already at risk.
- I was fortunate in the last week to meet/talk with clients in the medical profession. One worked for years in the infectious disease sector, and the other was a long-term pathologist. While both of them said the virus was a serious concern, they also firmly believed that through technology in the medical field, and the precautions so many of us are following, we will be successful in beating the virus and getting our lives back to normal.
- Lastly, while there is much frustration over the shortage of masks, ventilators, and other medical equipment, it is wonderful to see how in times when things have been quite contentious, all of the critical entities needed to generate those supplies are working in unison to win this fight. This includes the Federal government, state & local governments, private corporations, small business owners, and many non-profit organizations. It’s amazing and encouraging to witness how well we can all work together when the cause is important enough. Let’s hope that type of unity can carry over into life once the pandemic has passed.
Re: The economy:
- One of the great things about America is the tremendous resiliency it has shown throughout its almost 250 year history. I firmly believe that quality is linked to the fact that while we are not perfect, we are founded in freedom, and it is that freedom that motivates people to create, grow, invent, and strive to be better. It has also made us the most prosperous nation in history, and a nation that can use its resources to help millions of people both here and around the world. Just look at the dollars, time, and manpower devoted every year to helping people in need, and you will appreciate that our success is not just linked to personal wealth.
- Every decade I have been alive has had its challenges, but the people and businesses of the country have always found ways to overcome them. While I was only in single digits during the 50’s, and thus don’t remember the details, the country was trying to get back to normal from World War II, and managed to turn that decade into one of the most productive ones in our long history. The sixties was one of social revolution, civil rights movements, and, unfortunately, the Vietnam War. Despite some internal strife, we managed to move forward. The seventies, which was when my career as an advisor started (1973), was a decade of extremely high inflation, economic stagnation, and a stock market that was virtually flat for 10 years. As the eighties unfolded, the economy started to one again grow, and the U.S. Olympic hockey team shocked the world and brought a country together, and people saw hope once again shine.
- The nineties, especially towards the back end, was a decade that feasted on technological innovation and creation, and by the end of its tenure, people couldn’t wait for what magical things the next century might have to offer. However, the 2000’s were marked by the horrible terrorist attacks on 9/11/01, the Enron & Tyco scandals of 2002, the real estate bubble, and the devastating financial collapse of 2008 and early 2009. While the decade didn’t turn out to be the Camelot people had hoped for, we all learned how to overcome adversity and move forward.
- The last decade (2010-2019) did not have the rampant economic growth we would have liked to have seen, but it did once again demonstrate how resilient the people and businesses of the Unites States can be. Instead of reeling from the issues of the 2000’s, the country pushed forward with the vision of greater things to come. By the time this horrible virus was unleashed upon us, our economy was once again cranking on all cylinders; and I am firmly convinced that we will fully recover from the medical, social, financial, and economic impact of the virus, and resume growing over the next 10 years.
- The point of this historical perspective is to demonstrate how overwhelmingly successful the country has been in overcoming adversity; and how it can be successful once again.
Re: The investment markets:
- During the first 10 years of my career as an advisor, the stock market didn’t have significant growth, but it also didn’t have much volatility. But that was also the time when interest rates were double-digits, and people could earn 10% or more on their savings, CD’s, and money markets; so most people didn’t need to have their money invested in the stock market. The counter side, of course, to the high interest rates on savings was that mortgage rates were also above 10%. So it was a different kind of financial stress and worry.
- The 80’s was a good decade for stocks, but it also contained the infamous “Black Monday” on 10/19/87 when the DJIA dropped (-22.6%) in one day. That significantly unnerved millions of people, but by the end of the year, the S&P500 actually finished up +5.25%.
- The 90’s were basically a straight line upward for equity markets, with unprecedented growth of the S&P500 from 1995-1999 when that index averaged more than +25% for five straight years. But despite those statistics, I think we all remember how worried we were that the world might come to an end due to Y-2K
- The 2000’s, as stated in the economic section above, was a combination of 6 positive years and 4 negative years, with three double-digit downturns of -11%, -26%, and -37% in the S&P500. By the end of the decade, the indexes were still above where they started despite the huge level of volatility in the equity markets.
- The last decade (01/01/2010 to 12/31/2019), saw nothing but ups in the market except for 2018 when there was almost a correction of (-20%) in the 4th quarter, and the S&P500 finished (-7%). But overall, the same index grew by just over a +10% average per year in the decade.
- We are less than 3 full months into this decade, and after a solid start to 2020, the virus hit and the stock markets have been as volatile as I have seen during my career. The S&P500 finished today (03/25) at 2,481, which is about a (-23%) decline for the year. At the outset of this week, the index was down over (-30%).
- The information just shared reflects that over the long-term, the equity markets tend to be rather solid and resilient, and have shown a strong ability to rebound and recover. I realize that past results are no assurance of future results, but in general, our opinion is that if your accounts with equity exposure have 5-7-10 or more years before you plan on starting to access those funds, the better your chances are of having those assets overcome this decline and do well in the subsequent years.
- One challenge facing investors who might want to exit the equity markets and shift into more conservative assets is the fact that interest rates on savings, money markets, CD’s, and even U.S. Treasuries remain well below their historical averages. Thus, shifting out of assets that have grown steadily via the use of equities into assets that have less volatility but also much smaller rates of growth is often a very difficult decision.
- I’ll end this section by saying that what decision you make with your investments should be a very personal one linked to your own objectives, times frame, risk tolerance, and other factors that could affect your decision. If after reading this you want to sit down and discuss all of the above, we would encourage you to do so.
Re: The emotional aspects of the current stock market decline and volatility:
- People work very hard for the money they earn, and then they strive to diligently save/ invest as much of that income as they can comfortably afford to do. For these basic reasons, any significant decline in the value of their investments is going to be unsettling and fraught with emotion. That’s just human nature. So we, as advisors, understand what you might be feeling.
- The current unsettling situation on the investment front is compounded and magnified by the medical and personal health fears linked to the COVID-19 virus.
- And thirdly, for those currently not able to work because of various government orders and shutdown of businesses, there is the inner fear linked to the question “when will I be able to go back to work and earn a paycheck”.
- This nasty triad of emotions has millions of people in a nervous and frenzied state of mind. So while some/much/all of what I have shared above might make sense to you, it also might not keep at bay those emotions which often keep you awake at night and glued to the news reports on your TV. We understand this as well.
- For all of the reasons I have listed above, I believe our country will come out of this challenge just as unified and strong as we have from the challenges we have faced since the time I was born, and even before that in the five deadly and destructive years of World War II.
- Part of our role as your advisor is not only to provide you with sound and constructive financial advice, but to also be there to listen, absorb, identify with, and empathize with the emotions you are feeling in these unsettling situations and circumstances. In some cases over my 47 years, I have found that this part of my work has often proven to be just as valuable as the investment guidance I have given.
- As humans, we seem to always have the urge to run when danger, uncertainty, and fear are at the forefront of our thoughts. As your advisor, I/we strongly urge you to resist the initial urge to flee, and instead seek to have in-depth discussions with us and your other important advisors (doctor, lawyer, CPA, etc.) before making decisions that could impact much of your life ahead.
In closing, please know that you are always in our thoughts, and want to do whatever we can to help you get through these very uncertain times. Those of you who would like to discuss what you are feeling and thinking, I look forward to talking with you. In the meantime, stay safe and healthy.