Given the current state of financial markets, it’s probably a good time to try to put things into perspective. No one knows yet the true impact the coronavirus will have on our global economy. The situation may worsen before scientists develop effective tests, drugs and vaccines from studying the genome sequences and live samples. If anything is certain, it is that human beings are resilient and able to overcome almost any obstacle and we believe this situation will be no different.
Events like the coronavirus that create market inflection points are for the most part unpredictable. They can occur quickly, without warning and markets typically (but not always) go down faster than up. Almost anything can cause changes in investor sentiment, not just previously unknown viruses. Looking back over the past decade, very few predicted the financial industry meltdown that began in 2007 or the historic rally that began in 2016 after the presidential election. Long-term investment strategies should not be dependent on predicting the unpredictable.
Like it or not, our world’s economies are connected at the hip. This is due to many reasons, not the least of which is consumers’ desire for the lowest cost, highest quality products and services available delivered ASAP. It is also due to companies’ need to diversify their production capabilities and labor forces to meet that demand. A more altruistic motive is the goal of many developed countries to help lift under-developed nations through economic advancements. If we want to benefit from trading with other countries and avail ourselves of travel opportunities to the four corners of the world, we must stay connected.
Chatter about global growth was coming from several fronts before the virus, including the situation with Boeing, America’s largest manufacturing exporter with over 160,000 employees. The grounding of Boeing’s fleet of 737s resulted in a world-wide domino effect on parts suppliers, airlines and those who depend on them, creating concerns of a negative impact on global growth. Then, along comes the coronavirus and we all know what happened. We are now seeing a downside of that global inter-connectivity.
Believe it or not, the current sell-off is well within the norm and will prove to be temporary. As of this writing, domestic equity markets are down about 8% - 10% from recent highs with foreign markets off more. On average, over the past fifty years, the S&P 500 (a measure of large U.S. companies) falls about 15% annually at some point during the year. About every 3 – 5 years it falls 20 – 25%, and even less frequently it falls 30% or more. Successful and committed investors in broadly diversified portfolios comprised of the greatest companies in the history of the world understand this and maintain a certain detached objectivity when it comes to market volatility. Ten years from now when we look back, this will likely be another blip in the ever-upward march of the world’s economies and the values of those great companies meeting the needs of the world’s consumers.
There is no substitute for an intelligent, goals-based financial plan to determine the appropriate mix of equities, bonds and cash for your unique situation. A decision of this magnitude should be made before periods of excess market volatility, and certainly not in response to them. Partnering with a team of experienced financial advisors can also pay dividends long after the current crisis becomes a distant memory. An advisor can offer a calm perspective during uncertain times and help investors avoid an impulsive reaction that can wipe out years of prudent planning and saving. At Wealthview, we understand the importance of our role in partnership with our clients and remain forever grateful for the trust and confidence placed in us.
Sam Taylor, CIMA®, AIF®, CRPC®