I hope this finds you and your family safe, healthy and doing well! Wow, how much our lives have changed in a little over a month. Not too terribly long ago we were celebrating Punxsutawney Phil not seeing his shadow and the potential early onset of Spring. Now, we’re anticipating the warm weather in hopes it will help eradicate a virus that started across the world in Wuhan, China.
Today, the virus has made itself to over 184 countries, and we are in a global, all hands on deck. Our everyday lives have changed radically over the last few weeks as we work together to minimize the virus’s impact. In the interim, global economic growth has slowed, the U.S. economy, amongst others, are contracting temporarily and U.S. stocks are in a bear market. Significant volatility has become the norm in the equity markets. Interest rates have seen all-time lows making borrowing less expensive and challenging savers. In short, this has been a tough period for many of us long-term investors.
Despite elevated uncertainty, we are encouraged by the actions of global central banks and governments to support their economies and financial markets. In the United States, the Federal Reserve lowered the Fed Funds rate by a full percentage point on Sunday, March 15th allowing it to operate in a target range of 0–0.25%. The full impact of lower rates may have to wait until loan demand picks up, but other Fed actions may provide more immediate support to help financial markets continue to run smoothly, bolster short-term funding and increase liquidity. At the same time, the US government already has passed several measures to support the economy, and it’s currently working on a major fiscal stimulus bill.
It can be difficult to keep looking ahead with so much uncertainty and so many unanswered questions. We wouldn’t be human if we felt differently. As I wrote in an earlier communication, the financial markets are in a process to find correct values amongst the virus’s economic impact. In times like these, it is important for us to understand that the stock market will find an eventual bottom and start its ascent long before the economic data is attractive.
In the Great Recession of 2008, the S&P 500 bottomed on March 9, 2009 at 676.531. The National Bureau of Economic Research released on September 20th of ‘09 that the U.S. economy had exited recessionary status in June. When the coast is clear announcement came, the S&P 500 was at 1,068.291, an increase of 57.90% in a little over six months without considering the reinvestment of any dividends. By the time the longest bull market in history (11 years, almost to the day) finished running on March 11, 2020, the cumulative gains were over 400% from the bottom. The patient and disciplined long-term investor was rewarded for remaining steadfast. We find ourselves in similar territory again. The markets are forward looking, and we need to be too.
It is possible that we see an economic rebound later this year and into 2021 as the outbreak is contained, businesses reopen, and fiscal and monetary policy expands. World economies, especially ours, have navigated uncharted waters before. Through even the most challenging of times, financial markets have eventually found their way back to normalcy and investors have been able to look to the future.
For lack of access to a crystal ball, I do not know where the bottom will be in this or any other decline. I wish I did. The fact is no one knows. Here’s what I do know: the advice we have rendered throughout the years is time-tested, long-term, strategic in nature and was shared to prepare us for times exactly like what we are experiencing. While most triggering events in economic downturns are different, the financial planning and investing playbook remains the same or very similar. We stay focused on what matters most, we control what we can control, and we expend as little energy as possible on those things outside of our control. I feel so fortunate to be doing my life’s work and believe one of my biggest responsibilities is to prevent Clients from making decisions they may later regret.
In closing, it’s times like these that confirm the importance of having a solid financial foundation. This foundation includes a sufficient cash reserve (between 3 months and a year’s worth of living expenses, depending on our situation), living below our means, a healthy savings rate (if we are still working), and no consumer debt. I know, this is not fun or sexy cocktail talk and could even feel like I’m asking you to eat your greens. Here’s the thing: outside of a health event, accident or behavioral investing mistake, our probability of becoming financially independent increases significantly by following just a few simple (but not easy) steps. We can do this!
As always, thank you for allowing us to help you in the pursuit of your financial goals. I cannot express with words the fulfillment I feel inside to be of service to you and your family at all times, but especially now as we navigate these waters together. We are here for you if you need us, so please reach out anytime. Be safe, take care and I’ll check in again soon!
All my best,