You’ve been quite the year so far.
At the New Year, life felt very different than it does today. Although the first cases of COVID-19 had already begun sprouting up, they were a world away. Most of us had no idea what life would look like a short three months later.
The economy felt strong. The market was at an all-time high. Housing prices were rising, mortgage rates were low.
Then, in a matter of weeks, everything changed.
Let me take you back to another memorable year...
The year was 2008.
After 2 years as a paraplanner and 4 years at Pathways, I was officially a Certified Financial Planner® practitioner. I had just passed the CFP® test and was beginning to meet with clients on my own.
And I was terrified.
We were in the worst bear market since the Great Depression. I was still “new” to investing and so green, and I had only seen the good times. This was something I had never experienced before. Suddenly, I saw first person how faith in markets could be tested. I held clients’ hands while going through it for the first time myself.
I had a century’s worth of returns at my fingertips and I was forced to really dive in. I had to know for myself how markets worked. I looked back at every bear market. How were they similar? What made them different?
I saw a trend in how the media reported market movement, particularly down markets. I saw multiple headlines, years apart, claiming the death of stocks or that this was a “new normal”. I understood just how much “noise” was out there, and the importance of making sure client’s heard my voice.
On March 9, 2009, I noticed there wasn’t a choir of people shouting “this is the bottom”! In fact, I didn’t hear much of anything other than more doom and gloom. When the market began its dramatic upward climb the next day, it was months before news outlets and “experts” acknowledged that maybe we were on the way up.
That bear market taught me a lot.
Here we are 12 years later and we are wrestling another bear.
In some ways, this bear market is completely different.
While 2008 was founded in subprime mortgages and risky lending, which slowly crumbled our financial structure, this one started with a strong economy blown apart by a world-wide pandemic.
One could say every bear market is “different”. For sure every bear market has its own instigator, as shown below.
|Source: Dimensional Fund Advisors. Note Disclosure|
This chart shows how the market has responded to each crisis over the last 30+ years. What returns did the market have after 1 year? After 3 years or 5 years? Although each instigator is different, what’s interesting to me are the similarities. Each time, a mere 5 years later, the cumulative return is quite remarkable.
We have no idea how long our economy will take to recover from our current crisis, but if history is any indicator, it will. And faster than maybe we expect.
This is a scary time. We know this. We worry about our health, the health of those we love, our employment or small business, our medical system, our mental health as we shelter in place and remove ourselves physically from our social networks. And it is natural and normal to worry about our investments as well.
As we have expressed in our correspondence thus far, we reassure you that we are watching this with you. We are looking for ways to maximize the situation to your advantage, whether that be through harvesting capital losses to reduce taxes, rebalancing your Portfolio or simply talking through your concerns.
It’s been quite the journey since 2008. I am grateful for that experience and the 12 subsequent years since then. They have taught me so much, and going through these last few weeks, I understand just how much I have learned. I am grateful for the in-depth discussions we have had together about allocations and risk, the behavior of equities versus bonds and the dangers of market timing. It has prepared all of us for today.
To the new investor, through this time you will gain a rock solid testimony of markets. You will know what it truly feels like to live through the allocation you have chosen. You will get to witness early on the surprise of the recovering market. You will be able to face future bear markets with some confidence of “been there, done that”.
To the long-term client, we have prepared for this. Every discussion, every meeting, has built the foundation needed to withstand shaky ground. We have done it before and we will do it again.
As I sit here in my makeshift “home office”, I acknowledge that we truly are in an unprecedented time. I’m not sure I’ve seen this much fear in the world before, but I have also seen so much community. We are all isolated at home, but in this together.
I wish each of you good health over the coming quarter. Whether in the office or sequestered in our homes, we are here for you. Please never hesitate to reach out.
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