Pandemic? Recession? How To Roll With The Changes

Personalizing your response to 2020’s Bear Markets, Recession, Pandemic and the rest of the hurdles to building and protecting wealth

It’s just another lazy summer in the midst of a boring, nondescript year. Oh, wait, that was last year’s message at this time.

2020 has been a time of great adjustment for all of us. Whether it is your job situation, changing your exercise routine or learning to get along with your family in close quarters, adjustments have been the norm. Like REO Speedwagon sang in the 1970s, we are all forced to roll with the changes.

But what about your portfolio?

This year has been a dizzy one for investors, no matter your approach. Headlines tell you the 1000 largest U.S. companies (Russell 1000 Index) are down very slightly (about 1%) year-to-date. However, the 2000 next-largest companies (Russell 2000 Index, the standard benchmark for “small cap” stocks) is down about 13%.

But that buries the lead, so to speak. Fresh in every investor’s mind is the 5-week selloff (February 19 to March 23). The largest 1000 companies fell by over 35%. The other 2000 stocks fell by 41%. In 5 weeks!

If you were a “buy-and-hold” or “60/40” type of investor, you had to shake off some nerves, as well as some red ink. However, the broad market recovered quickly during the past 3 months. So, if you were caught off guard, or simply slept through it, you are not in terrible shape, portfolio-wise.

The big question

However, regardless of how you performed this year, last year, or over the past decade is not really important now. The big question for you is whether you are prepared for the possibility that it will happen again. There are second chances in investing, but this one is one of the all-time great ones.

There has never been a better time to take account of what you are investing for. It all starts there. Then, you can put all of your unbridled effort into getting there. As with other aspects of your world, the shortest distance is a straight line. That said, its so amazing to us how often folks get off track. The media and the sales tactics of Wall Street probably has a lot do that. But this is no time to fall for that.

The prescription (is not more cowbell, or more day-trading!)

Instead, seek to understand what the key focus points are in today’s market environment. Sure, there’s Covid-19, but the economy was weakening before the pandemic started. The stock market looks much nicer in headline form than it does when you lift up the covers. The bond market is in big trouble, but as long as the Fed and other Central banks are there to backstop it, that trouble will hide from your view. But please know it is there.

Perhaps most significantly, the markets are now moved around by many factors that didn’t exist 20 years ago, or rose to prominence during that period. We’re talking about hedge funds, high-frequency trading, ETFs, and day-traders. Within that latter group are folks who took their stimulus check, are working less or sans their commuting time, and have decided to “play the market.” After all, but for a couple of brief, sharp breakdowns along the way, the past decade has been “easy money,” right? Wrong!

So, we start to get deeper into summer. It is a summer of Covid, and a summer without most sports. It is a summer with anger flying in many directions as a major political election approaches. And, of a market that doesn’t seem to pay much attention to any of it. But that’s on the surface. We encourage you to look below the surface. Look several layers below.

So push through it, and get plenty of enjoyment out of this summer. We will all be better for the good decisions we make during these times of turmoil.

Related: What Investing Through 5 Bear Markets Has Taught Me About This One