This, Too, Shall Pass

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I’m not sure if your investment advisor has reached out to you yet, but I thought I’d share a few thoughts with you from my own perspective…

As you’ve probably noticed, the markets have been taking a beating. A bear market was inevitable, we just didn’t know when or what the trigger would be. Now we know. As the powers that be try to figure out how to stop the spread of the corona virus with travel restrictions and crowd limitations, they are trying to combat the inevitable economic slowdown by economic stimulation, mostly through interest rate cuts. The problem is that each time the Federal Reserve makes an emergency rate cut, the “markets” realize that things are out of control and panic some more.

I’ve often been told that I’m a pessimist but I think I’m a realist. If things are all wonderful and sunny, I think, “this, too shall pass”. (I personally believe optimists must be the most disappointed people on earth. If you think everything is going to come up roses, you will be disappointed.) On the other hand, I’m a wild eyed optimist. When everything seems to be crashing down around us, I think “ this, too, shall pass”.

And, it turns out, both situations do pass.

Is the economy going to fall into a recession? There will definitely be economic slowdown. How can everyone stay home and the economy keep on rolling? It can’t.

A recession is defined as two consecutive quarters of declining economic activity as defined by the gross domestic product of the country. So, if the decline in March is less than the increase in January and February, a “recession” can’t be confirmed until after September. Even then it will depend on how quickly the economy slows down and then recovers.

The only thing we do know for sure is nobody really knows for sure what’s going to happen, but we do know that this, too, shall pass.

So, the best thing to do is stick to your plan. But your plan should include a well diversified portfolio. That means investing in asset categories that are not closely correlated with each other, avoid over concentration in any one investment category and stick to the higher quality investments in each category. Your plan should include a rebalancing strategy and you should stick to that as well.

We’ll likely continue to have a bumpy ride for the next little while. In the meantime, if you’re feeling anxious, this may be a good time to revisit your financial plan or develop a financial plan if you don’t already have one.

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