By John Drachman
Like every bear market every pandemic ends.
For those sheltering in place looking for some alternatives to the drumbeat of the 24/7 Covid-19 news cycle, the time may be opportune to review the fundamentals behind your investment strategy and consider taking one or two small steps to re-engage with the market.
Inevitably, a time of crisis reminds us that we probably could have done more to create a lasting portfolio for longer-term needs. However, as emotionally painful as current moment is, it can also paradoxically serve as a wakeup call to review portfolios and investing habits. For those with the fortitude, “buying the dip” can even be advantageous. With stocks finishing closer to their highs than their recent lows as of Friday’s close, it’s as if the markets are signaling “don’t give up on us yet!”
Every recovery is unique
Each bear market follows its own trajectory and timeline. The worst bear market in U.S. history was the famous “Crash of 29” that lasted until June 30, 1932. More than 84% of gains were wiped out over the course of 34 months. That was followed by a bull market and a short correction that led directly to the historic post-World War II boom that skyrocketed through the Fifties. More recently, the 2007-2009 bear market lost 51% of its value over the course of 16 months as measured by the S&P 500 Total Return Index. Considered a major correction at the time, stocks soared through record bull market territory over the course of the next 11 years.
And now, while continued investing through the Coronavirus crisis may be challenging, the fundamentals of investing remain the same:
- Stay cool: “Bear markets do not destroy wealth,” says financial advisor Stephan Cassaday. “Your portfolio is like your face: Don’t touch it!” Accept that bull markets have followed every bear market in history and be patient. Investing on emotion, whether from fear or favor, can undermine a portfolio’s long-term success.
- Focus on the long term: If you have extra cash to invest, consider your selections carefully with an eye toward maintaining a longer-term, three-to-five year time frame.
- Forget market timing: No serious financial advisor claims to know when the stock market will hit bottom. “The average decline going into a recession is 35% to 40%,” says advisor Andy Burish. “So, 45% to 50% down wouldn’t surprise me.” On the flip side, don’t be overly impressed by large short-term advances either.
- Diversify risk: The right portfolio blend of stocks, bonds, mutual funds and alternatives should reflect an asset allocation strategy that conforms to your own unique risk-reward profile.
- Consult with an investment professional: A period of global stress like the present is not the time to go-it-alone. Even the most avid do-it-yourselfer would benefit from “a sounding board.” Consider letting an advisor interview you about your lifestyle goals, comfort with volatility, age, estimated retirement date and assets, both liquid and illiquid.
There’s good news too about recent advisor performance. According to the J.D. Power 2020 U.S. Full-Service Investor Satisfaction Study, SM contentment with advisors is at an all-time high. Investors cited providing useful guidance; fulfilling service expectations; and putting their interests first as the advisor attributes they valued most.
John Drachman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.