The unprecedented events of the last several weeks have taken our economy and markets into uncharted territory. There is great uncertainty among investors right now, and rightfully so.
Many are calling this the biggest crisis since the Great Depression, and it may be. But there are some key differences between 1929 and 2008. Our economy is much more resilient today. Over the last century a combination of monetary policy, banking system regulation, and business improvements have led to shorter, less severe recessions and longer and more prosperous expansions.
Also, equity markets are relatively cheap. They may get cheaper, but the value offered in today’s markets (both US and International) should provide some degree of backstop to further declines.
I’ve been investing, personally and professionally, for 20+ years and I need two hands to count the crisis events through which our economy and markets have successfully passed. There is no question that we are in a crisis event now, but I am confident we will get through it and live to face another.
As an advisor I see my job in the current environment as follows:
Make sure that you are in the right portfolio to begin with. Your investments should be in a diversified portfolio that reflects your tolerance for risk, and is designed to help you meet your long-term goals despite market gyrations.
Make the best of a bad situation. Stock market declines present opportunities. Today's environment offers opportunities in tax management and estate planning that can be proactively exploited.
Stay fully invested. If your plan is sound, then there is no reason to sell. It is human nature to want to sell at the very moment that one should be buying more. It is no coincidence that staying invested is sometimes the very hardest thing to do. The most profitable thing often is.
Participate fully in the eventual recovery. No doubt, there are also lessons to be learned, and tactical opportunities to be exploited, but the single greatest determinant to investment success is owning the market when it recovers.