For the third week in a row, the US Markets experienced extreme volatility. In addition to the increased anxiety related to Coronavirus, the OPEC+ countries, particularly Saudi Arabia and Russia, decided to increase oil production and cut pricing in order to gain back market share from US shale producers.
The markets do not like uncertainty, and it is without a doubt that we live in uncertain times. We continue to stress discipline and adherence to long-term financial plans. As always, we are available to meet when convenient.
Below is this weekend’s recommended reading:
Morningstar re-published an article previously written in January 2019, after the market dropped 20% from October to December 2018. In the article, the author notes famous studies by behavioral economists detailing the instinctual urge to act when faced with stressful situations. Ultimately, as evidenced in research, the author suggests avoiding constant attention to the markets, as we are hardwired to want to act on emotion during stressful periods. The author also provides a great chart which details how returns have tended to be volatile in the short-term and consistent as time horizons increase.
We have been frequent readers of the A Wealth of Common Sense blog for years, and the author, Ben Carlson, provides great data on market history. In this post, he details each bear market since the Great Depression, the time it took from peak to trough, and the time it took for the markets to recover. As summarized in the post, bear markets have, on average, taken about 1 year to go from top to bottom and about 2 years to recover. As we have discussed with many of clients in or nearing retirement, we generally recommend having several years of expected liquidity needs in fixed income and cash reserves.
The author points out several reasons why we should be optimistic about the future and the fight against this virus. It is unclear as to the extent at which containment measures will be implemented – social distancing, mandatory work or school closures, etc. We do have confidence this period will be temporary and life will return to normalcy. In markets and long-term investing, optimism has been the evidence-based outlook.
Please note that we have learned from previous natural and man-made disasters (September 11, Hurricane Katrina, etc.). As such, we invested heavily over the past several years to set up our firm’s infrastructure for remote work, if necessary. There will be no business interruption on our end, whether we are in the office or working from home. We have also partnered with some of the largest asset custodians in the world in order to ensure our clients’ accounts can be serviced without interruption.
We hope everyone has a happy and safe weekend. Please give us a call if you have any questions.
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