Already in 2020, we have seen market rallies, crashes, and rallies once again. We have seen very low unemployment, historic spikes, then drops. The economy has gone, and continues to go, through its own set of gyrations. It is hard to figure out how one
is supposed to feel and then be able to react appropriately. However, if there ever were a time when staying the course and taking a longer-term perspective was appropriate, this is it.
The best course of action is to tune out the noise and concentrate on the end result. Doing so will help guide you as to how you should allocate your funds between current, short-term, and longer-term needs and goals. You won't be reacting, you'll be
At the mid-point of the year, it feels like things could certainly be worse, considering where everything stood just three months ago. While the markets are recovering, questions remain as to whether or not the rally is sustainable. There are valid concerns
of a second wave of the virus (and the fear of a second shutdown), as well as how far and fast the markets have rebounded. Though the economy is doing better, its road back has been quite uneven. For example, travel-related stocks (e.g., airline,
cruise, rental car, and some hotel companies) have not fared well, while other industries (e.g., certain areas of retail) have done surprisingly well. Home sales have been strong in certain geographic areas (Madison included) and less so in others.
Yields have fallen on money market funds and CDs to next to nothing, and finding good values in the fixed-income space has proven difficult. This makes it hard for investors to determine what path to follow. Large-cap? Small- or mid-cap? Value or
growth, domestic or international, or emerging markets Corporate bonds, government bonds, or high-yield bonds? All have had their moments this year, and all have had some challenges. Staying the course has not always been easy, but it has proven to
be a less volatile path than attempting to time the markets.
The ability to stay the course is dependent upon knowing who you are as an investor. Getting a handle on your financial needs over the course of time can help set the stage for how to invest to meet them. Short-term funds (i.e., less than five years)
should be invested in a more stable sleeve of products than funds needed over the long term. Income demand can push one in a different direction than someone who needs growth. Saving to buy a new car is different than investing for retirement. Put
aside old “rules,” such as using “100 minus your age” to determine the level of equities in your portfolio, or utilizing a 4% withdrawal rate in retirement, or becoming more concerned about preservation than growth as you enter
retirement. Instead, focus on your goals to determine how and when and where to invest. Then, just as when rebalancing your portfolio, review those goals periodically and make appropriate adjustments. This will help in periods of uncertainty, like
this year or 2008, though it does not guarantee that you will not face losses. It does, however, help put the risk in the right areas, with the knowledge that those specific areas have the opportunity and time to bounce back.
Market prognosticators have, for several years, forecasted the potential of below-average returns from stocks, as the economy grew at a slow pace, and they are doing so again now. Their reasoning is, it will take time to see corporate earnings recover
and show growth beyond the pre-virus levels, and the markets have recovered so quickly. While that may be true, the alternatives are not all that great (see: bond yields), so they continue to recommend stocks even though they question their current
valuations. As it generally does, a balanced approach (whether between stocks and bonds, or within stocks or bonds) is usually the best option and the most comfortable ride through periods of volatility. The data generally backs this up – multiple
studies have shown that staying invested during times of volatility has provided better returns than trying to time when to buy or sell. Unfortunately, those same studies show that most investors do not fully heed the advice, as they either think
they can do better or run scared, or both, and end up with even lower returns. Knowing your needs and investing appropriately works but requires discipline.
And though it's been said a number of times already, once more won't do any harm: Our approach has not changed, as we continue to seek out opportunities that provide a balance between protecting the downside and looking for opportunities to grow. We are
here and available to discuss your portfolio or any other issue you may have. Please give us a call at (608) 826-3570
, or send us an email