Times like this are when – and how – we earn the fee you pay us. It’s when the trust you place in us and the work we do for you, your families and your legacies means the most.
The concern you are feeling right now for your families and your finances are very real, and very understandable. There are the health concerns. Please, please, please, listen to the CDC advice (and not that of Facebook) and take care of yourselves. More on that later. And there are the life disruptions. My son’s first year at college has been cut short. My high school junior daughter has (at least) an extra week of spring break – usually a cause for celebration but being home with “just her family” for an indeterminate amount of time is not exactly what this 16-year old had in mind. More important than my personal experience, graduations, funerals, births and weddings are happening without the usual collection of family and friends. Small businesses are having to (temporarily) close. Big businesses are seeing unprecedented interruptions. I’m confident you are experiencing your own bewildering disruptions.
And yet, there are the small scenes of human decency emerging. Grub Hub waving commissions to help restaurants serve delivery customers and stay afloat. Car rental agencies allowing college students to rent cars so they can get home. Utilities are extending credit so people can literally keep their lights on. People are offering to do shopping, yard work, pet walking and other errands for their senior neighbors so those at risk can stay safe. And (some) people are actually leaving the last package of toilet paper on the shelf for someone else to purchase.
And yes, there are major financial disruptions. Market volatility has returned in a powerful way as the human toll of the virus becomes more acute. Stock and bond markets are being hit, even with the Federal Reserve and banks intervening.
So my purpose in this letter is three fold: share some perspective on the markets, share some encouraging news on the scientific/health side, and, finally, some advice.
Perspective on the Markets
It’s not your imagination. This market decline has been both significant and rapid. The S&P 500, which recorded an all-time high close at 3,386.15 on February 19, closed on March 12th (before rebounding strongly the next day) at 2,480.64. At that level, it is down 26.74%. Since the end of WWII, this is by far the fastest the market has ever gone from an all-time high into a bear market (22 days or, if you prefer, 16 trading days). The previous record was in 1987, when the decline took eight weeks to reach minus 20%. No other postwar decline comes even remotely close.
In times of market volatility, it’s important to maintain a long-term perspective on the power of the stock market to grow one’s wealth and deliver a steady stream of retirement cash flow. Since the end of World War II, the S&P 500 has delivered average annualized returns of 10% per year, despite experiencing 30% declines once every five years or so. We are clearly in the middle of one of those significant declines now. Despite those temporary declines, the market has continued its permanent advance. This market has marched upward despite wars, inflation, oil shocks, terrorist attacks and more.
Source: FactSet, NBER, Robert Shiller, J.P. Morgan Asset Management.
Data shown in log scale to best illustrate long-term index patterns. Past performance is not indicative of future returns. Chart is for illustrative purposes only.
J.P. Morgan Guide to the Markets – U.S. Data are as of December 31, 2019.
Those of you who have been retired with us since the 2008 crisis already know how the Stability Bucket of Power of 5 Investing works to stabilize your portfolio during turbulent times such as these. Those who have joined since can take comfort in knowing that we’ve been here before and that the most important role we play as advisors is helping our clients stay the course, especially in trying times.
At times like this I find myself repeating the 5 most important words in investing “It’s NEVER different this time”. I still believe in the great resiliency of the American people, and the American economy. While what we are experiencing now is unprecedented, we have built a plan and a portfolio for exactly this kind of event. Riding out this historic decline is how investors will earn the premium returns of equities when the market firestorm burns itself out and the permanent advance resumes.
(If you’d like a refresher on our Power of 5 Investing philosophy and how it has been applied to your portfolio, click here: Power of 5 Investing. Portfolios are built in anticipation of volatility, not in reaction to it.)
Encouraging Science News
I’m a regular follower of Brian Wesbury, an expert in both the markets and history, and a fervent believer in the power of people to overcome any challenge that comes our way. I have included a recent commentary from Wesbury’s company as it provides a compelling overview of how well-poised the US is to deal with this virus. Please see the attachment if you’d also like to understand his perspective.
My advice in the coming weeks is pretty simple. Stay home (stay safe!), spend quality time with your loved ones, dust off those old books and board games, binge on some Netflix/Hulu, make a few home cooked meals (maybe learn a new recipe!), look through old photo albums, do a little spring cleaning. Allow yourself to read the latest guidance about the virus from the CDC and what your government and health leaders are saying, but please stay away from unsupported social media advice (even my wife fell in this trap . . . ). Try not to look at the stock market every day (because it’s going to be crazy for awhile), but if you do, and you’re concerned, call us. That’s what we’re here for. Together, we’ve got this.
As always, we’re here for you. Feel free to call us with any questions or concerns. Thank you for the trust and confidence you have placed in us. We will continue to earn it.