It has been comforting to me, and I think to our clients, that during the Coronavirus crisis the Retirement and Financial Plans we worked on in prior months and years showed what their real financial position is instead of focusing on only short-term market moves. However, even well-conceived plans encounter challenges when circumstances change in an unexpected way. In fact, recent events have caused me to re-write this article several times.
First the economic issues: recoveries vs downturns
All market declines are unique, and certainly this one is without precedent in my lifetime. It is a fact, however, that historically the recoveries have been much longer and stronger than downturns. The most recent example is the S&P 500 on 3/23 at about 2,237, followed by about a 36% recovery through Friday May 29 to about 3,044. Still down for the year, but you get the point. Make a plan, stay focused on the long-term, and don’t overreact to the news. You only have a permanent loss if you sell after losing.
Will there be a second stock market pullback or a ‘double bottom’? Could be, but to paraphrase Warren Buffet: ‘Don’t bet against America’. It is also interesting to note that some new companies will arise from this as they have in past recessions (yes, it appears that we are in one). The question remains whether or not these new companies will be able to hire those who have lost their jobs, and replace those businesses that will not make it back.
The Congressional Budget Office yesterday came out to say that it will take 10 years for the economy to fully recover. Frankly, they have been wrong so many times that I don’t pay much attention to the CBO; but I have to include that here. For now, the best guess is that we will get to a semblance of normalcy within the next six months, and complete normalcy economically when there is a vaccine.
China reneges on a 50-year old treaty on Hong Kong
The Communist Chinese Government has decided that, during this pandemic of their own making, they would move to a complete takeover and rescind all the rights of the people of Hong Kong. Weren’t the people of Hong Kong protesting before the Chinese Government caused the pandemic? What a coincidence. This will undoubtedly have trade implications, as Hong Kong is a major Far East trade hub. Likely, it will have a negative impact on the U.S. ‘Phase One’ trade agreement. Stay tuned!
How will you proceed?
We can all ‘shelter in place’, be paralyzed by worry, and generally not plan on coming out of this in good shape. Or, we can take charge of our lives by making and executing a plan of action. It is entirely your call whether or not you decide to plan, be positive, and see the big picture. Just know that we are here to help you to create, execute, and monitor your plan, including utilizing the many risk-management tools at our disposal. We look forward to working with you!
Past performance does not guarantee future results.
by Ronald Donato, Jr., CFP®, MBA
Director of Financial Services