The market turbulence brought on by the Covid-19 pandemic has been difficult emotionally for many investors. Coming off the longest economic expansion in US history, investors are taking stock of the transition into recession territory on their portfolios.
In recent weeks we have come to expect volatility as markets drop and gain with daily economic data. Going forward we will continue with varying degrees of ups and downs; but it is important to see these as constantly changing variables rather than indicators to overhaul your portfolio triggered by fear.
Investors look for comfort in these times and look to understand the nature of market turbulence and recovery. People have questions and there are some valuable perspectives to keep in mind if you find yourself uneasy about your investments.
How long will this recession last? Do not expect change overnight.
Reference to a popular investing sentiment can help with perspective; ‘Markets take the elevator down, but the stairs up.’
Markets take the elevator down, but the stairs up
It is important to recognize that markets don’t recover overnight. We have seen both downside and upside movements in recent weeks. After making a historically quick descent we saw upswings as well. After dropping into bear market territory, it is not unusual to see some bear market rallies and additional drops along the way until we recover and eventually swing back into a bull market territory again. Patience is valuable and recovery takes time.
What is the main thing that will pull us out of this recession? It isn’t any one thing. It’s a whole basket of things.
You can’t look at any one piece of data as the key variable that will determine market movement. There are an incredible number of variables at play in our global economy.
Economic data is one thing, but markets are also affected by the unprecedented amounts of stimulus measures being implemented by governments and the constant amounts of new and changing data related to Covid-19. Service driven businesses and their employees have been hit particularly hard. Personal incomes, unemployment rates and consumer confidence all factor in. The list goes on.
People are wondering what recovery will look like as the economy works to find its way back to a productive state with new parameters in place.
Consumer confidence shock will play an important role in this particular economic recovery. When the time comes, just because health officials say it is ok to go back to restaurants, theme parks and concerts does not mean the majority of people will be comfortable to do that right away. There will be a lingering consumer confidence shock for many people. This variable will also factor into the speed of recovery.
Philip Petursson, Chief Investment Strategist, Manulife Investment Management recently indicated the recovery might look a bit like a Nike swoosh. The initial drop followed by a long slow ascent to recovery. We would expect some continued volatility along the tail, but the image of the swoosh illustrates a potential pattern for recovery that can help investors visualize how the upswing may play out. In other words, settle in.
What’s the silver lining? There is great opportunity, especially if time is on your side.
Albert Einstein once said ‘In the middle of every difficulty lies opportunity’ Investment gurus and portfolio managers wait and watch for years to seek out opportunities like this when markets drop and buying opportunities emerge. When markets prices are low, they can make purchases at attractive valuations and amplify returns. Investing today can put you in a great position for the long term. These are the times when investing on a regular basis and using dollar cost averaging principles will shine. Making money in a volatile market. Let dollar cost averaging do the work.
In the middle of every difficulty lies opportunity - Albert Einstein
If you invest weekly or monthly along this long tail of the swoosh, you will have made strategic periodic purchases all along the leg of recovery. This will pay you dividends over the long haul.
It can be hard to separate emotions from your investments. Investors who have had defensive elements built into their portfolios for downside protection some will likely be weathering this volatility well. Investors making regular contributions right now in line with their investment strategies are also positioning themselves well for the long run.
It is important to keep in mind that a great deal depends upon your life stage and risk tolerance. You need to seek portfolio advice that is unique to you. If you are feeling concerned, speak to your financial planner and get the information and assurances you need for your own personal situation.
Column appears in June 2020 issue of This Month in Elgin
Stephanie Farrow, BA., CFP., Stephanie has over 26 years' experience in the financial services industry, a diploma in Financial Planning from the Canadian Institute of Financial Planning and Certified Financial Planner designation. Stephanie has been writing a financial column for local business magazine Elgin This Month/This Month in Elgin since 2010. Stephanie and her husband own Farrow Financial Services Inc. About our Farrow Financial Team.
Photo credit: Image by Gerd Altmann from Pixabay