It goes without saying that we’re living in very uncertain times. The nonstop news cycle allows us little reprieve from the onslaught of bad news. Many families are already struggling to make ends meet and others are coping with the fact that it might be several months before they can breathe easy again. Our clients have spent lifetimes working and the fruit of their labor is an investment portfolio put in place to meet their short- and long-term spending needs. Seeing the markets spend day after day seemingly in free fall is enough for anyone to lose sleep over.
In the words of Winston Churchill, “Success is never final. Failure is never fatal. Courage is the only thing.” I think this quote is appropriate for the times we’re in. We’ve all benefited from a very strong bull market in recent years. Money was made (in varying degrees) no matter where you were invested. Asset allocation was important during the bull market for one major reason… it prepared you for what we’re dealing with now. Success now relies on having a sound asset allocation based on goals, timeframe and, ultimately, tolerance for risk. Those who tossed their safe, secure (and low-yielding) investments out the window over last few years in favor of high-flying equity investments are now seeing the results of that strategy. Those who diligently stuck with the plan are able to weather this storm, meet their goals and come out on the other side.
While this virus pandemic is like nothing we’ve ever seen in our lifetimes, so was 911 and the housing/banking meltdown of 2008-2009. During both events the global economy was shocked initially, governments stepped in to maintain order and the private sector adapted. Investors with a proper allocation were rewarded with new market highs and solid investment returns. Those with portfolios too aggressively positioned for their risk tolerance or with money they needed in the short term tied up in risky assets, felt the pain of having to sell into a falling market.
Courage and discipline go hand in hand in a market like this. At Cabot, we work with our clients to develop an asset allocation that makes sense. It takes courage to stick to the plan when your gut tells you to “sell out and buy back later”. It takes discipline to keep investing money into a falling market when that is actually the exactly right thing to do for the longer-term portion of your portfolio.
Our lives and economy will be reshaped by current events… likely for the better. New companies may emerge as leaders and many others will evolve and thrive. Keep the “big picture” in perspective. Don’t sacrifice the long-term success of your financial plan by falling into the trap of making drastic changes to your financial plan during uncertain times.