We are surrounded by unknowns.
The coronavirus is still very much with us, as is much of the economic dislocation caused by the resulting lockdowns. Granted, we are evidently closing in rapidly on a vaccine—indeed, a number of vaccines. While encouraging, though, it may be some time before most of us will get access to a vaccine, and there is still a question of efficacy.
Also, we are going through a hyper-partisan presidential election and a contentious Supreme Court confirmation hearing. Plus, protests, rioting and social unrest are still causing chaos nationwide.
Before we become further engulfed by these multiple unknowns, I want to take a moment to review what we, as investors, should have learned—or relearned—since the onset of the great market panic that began in February/March and ended in August, when the S&P 500 Index regained its pre-crisis highs.
I also want to make a larger point that we may be missing some of the great things that are happening because of all the negativity we’re encountering.
A Few Thoughts and Observations
History continues to show us that what goes down must come up. Here are some examples of this market phenomenon:
- No amount of study, economic commentary, or market forecasting ever prepares us for really dramatic events, which always seem to come at us out of deep left field. Thus, trying to make an investment strategy out of “expert” prognostication—much less financial journalism—always sets investors up to fail. Instead, having a long-term plan, and working that plan through all the fears (and fads) of an investing lifetime, helps us avoid sudden emotional decisions and achieve lifetime goals.
- In March 2020, the equity market went down 34 percent in 33 days. Analysts dubbed it the “coronavirus crash.” None of us have ever seen that precipitous a decline before— yet, with respect to its depth, it was just about average. That is, the S&P Index has declined by about a third on an average of every five years or so since the end of WWII. Once again, the media helped create panic.
- Almost as suddenly as the market crashed, it completely recovered, surmounting its February 19th all-time high on August 18th. The news concerning the virus and the economy continued to be dreadful, even as the market came all the way back. Two lessons here:
- The speed and trajectory of a major market recovery very often mirror the speed and depth of the preceding decline.
- The equity market most often resumes its advance, and may even go into new high ground, considerably before the economic picture clears. If we wait to invest before we see unambiguously favorable economic trends, history tells us that we may have missed a significant part of the market advance.
- The overarching lesson of this year’s swift decline and rapid recovery is, of course, that the market can’t be timed. The long-term, goal-focused equity investor is best advised to just ride it out.
“Far more money has been lost by investors trying to anticipate corrections than lost in the corrections themselves.”—Peter Lynch
- Often, negative news creates positive economic action—for example, the monetary and fiscal policy that has helped fuel the market movement as the Fed has held interest rates at zero and the government has spent more than $2.8 trillion.
- Many worry about the outcome of the election and what might happen. American businesses adapt. Moreover, if the policies of the President, House or Senate are too radical we have another election in November 2022. The entire House and about a third of the Senate will have to face voters. Policy will change or the players will change, and politicians don’t like to lose their jobs!
Never Try to Time the Market
Each time there is an election, and especially now, people ask if they should get out of their investments and wait to see what the outcome is.
No! That is trying to time the market. Market timing is not possible.
Kevin O’Leary is a wildly successful businessman, author, politician, and television personality who appears on Shark Tank. He mentioned in our interview on October 7th, the biggest mistake he has made, which has cost him millions, is trying to time the markets.
“The stock market is a device to transfer money from the impatient to the patient.”—Warren Buffett
Poor Decisions Are a Bigger Threat than Market Volatility
I have worked in the financial services industry for 34 years and continue to see that those who develop a good plan and then stick with it succeed. In contrast, those who make emotional decisions because “this time It’s different” or “I am too old to see my portfolio drop significantly” often deplete funds. The biggest risk most people face is making poor decisions — not the markets or the economy.
Despite all the unknowns, this is one of the best times in history to be alive. We have amazing resources that were only science fiction a few short years ago. We should not lose sight of everything we have to be grateful for because of persistent negativity from the media, and sometimes family or friends.
Do we have food and shelter? Can we go to a store or shop online for whatever we need? If we can, then things aren’t really so bad after all.
So, take a deep breath, turn off the TV and radio, log off the computer and enjoy your family, friends and all you have to grateful for. Review your financial plan with your advisor. If you don’t have an advisor or a plan, this is a great time to consider both. Your vision — whatever it may be — is our guiding star. It drives our relationship with you and defines our success. Most importantly, it influences the plan we build together through our four-step Personal Vision Planning® process.
There will always be uncertainty, which creates an opportunity for those with good planning — and risk for those without.
A Time for Thanksgiving — Anyway
Let’s not let the negativity we’re encountering steer our sight away from the great things that are happening. This holiday season let’s pause for a moment to count our blessings. Take a moment to think about what you have to be thankful for.
Our team is thankful for the friendship and the confidence our clients and friends have shown in us. We are thankful for the opportunity for achievement among those with the courage to see beyond short-term issues.
As always, my team and I are here to discuss any questions or concerns you have, whether you are a client or not. We appreciate the chance to help navigate the madness. In a time filled with challenges and continued uncertainty, we are here for you and appreciate the trust you place in our team. Your vision is our priority. We are deeply thankful and extend to you our best wishes for a happy and healthy holiday season!
Randy Carver is the president and founder of Carver Financial Services, Inc., and also a registered principal with Raymond James Financial Services, Inc. Having been in business 30 years, Carver Financial Services, Inc. is one of the largest independent financial services offices in the country, managing $1.6 billion in assets for clients globally, as of October 2020. You can reach Randy at firstname.lastname@example.org.
The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index. Past performance does not guarantee future results..