The journey to achieving your long-term wealth goals follows a road that is not always smooth, clear and free of debris. Sometimes the market and the world at large will litter our path with obstacles for us to overcome. Global markets have been experiencing increased volatility, which comes in stark contrast to the even, steady growth that we often expect.
We understand the heightened uncertainty may cause anxiety about your portfolio and the future. But what can help in times like these is recalling our preparation for this scenario. Your portfolio is the custom vehicle we’ve assembled to achieve your long-term wealth goals. In addition to U.S. stocks, it is likely composed of high-quality bonds, non-U.S. stocks and other diversifying assets to act as shock absorbers to not only dampen short-term volatility but help prevent harmful, emotionally based investment decisions. And by design, bonds and other diversifying assets generally experienced positive returns or less severe declines than U.S. stock markets in recent weeks.
In today’s market environment, it is more important than ever to remain disciplined to the long-term investment plan that we put in place. When your portfolio was established, it was designed with the expectation that markets would experience sizable declines along the way. In fact, we expect the stock market to experience a 10% decline once every year on average with more severe declines occurring every other year. These expectations were built into your investment plan, which was stress-tested using sophisticated analysis tools.
We don’t know the duration or the extent to which the uncertainty surrounding the COVID-19 coronavirus will affect financial markets. But, we do know, at some point, there will be clarity and the fears surrounding the virus will dissipate and markets will react accordingly. Financial markets are incredibly efficient at pricing in news—good or bad—and the reaction can be swift. However, reacting on news is like driving forward while looking in the rearview mirror; news is reflected in prices almost immediately, so navigating based on what is behind us has no value.
It might be days, weeks or possibly months before the fears subside, and the news over that time may get worse before it gets better. Some of you may be tempted to abandon your plan and park your investments in cash until the outlook is clear. However, markets can move up just as quickly as they move down, with no clear indication of when you should get back in. Missing these up moves can be the difference between achieving your most important investment goals and failing to reach them in the time you planned or even altogether.
During volatility, take comfort in knowing that history has shown markets are resilient and continue to grow over time, despite short-term declines. Further, we understand the world is providing enough reason for concern right now; your portfolio doesn’t need to be another one. Instead, turn your focus to what drove your long-term wealth goals in the first place—family, friends and those in need.
If you have any questions about your investments, need to inform us of family or work-related changes, or want to discuss your financial planning needs, please reach out. We are here to help you reach your financial life goals!