We are halfway through 2020 and it feels like we are at a crossroads. The first 6 months of 2020 have been a whirlwind, to say the least.
Strictly speaking of the stock market, we saw the S&P 500 decline by an unprecedented fall of -33.92% in the span of a few weeks quickly followed by a slingshot rebound in the market of 44.47%. At the halfway point of the year, the S&P 500 was down -4.84% as of the close on June 30th. With everything that has happened this year, being down -4.84% feels pretty good.
Thus far, this year we’ve seen:
Worldwide pandemic
Record fall in GDP
Record increases in unemployment
Complete decimation of industries
Civil unrest on a level not seen in over 50 years
Continued trade war with China
The Green Bay Packers draft a QB in the 1st Round when they still have Aaron Rodgers (who has the highest career quarterback rating in the history of the NFL) under contract for another 4 seasons.
All jokes aside about the Green Bay Packers, that is a rough 6 months. And I don’t want to pour salt on the wound after the previous list, but we are about to enter election season where we are going to continue hearing about everything above many times a day.
With everything that has happened, what does this mean for the market going forward?
Well – to be honest, I don’t know what the next 6 months hold for where the market goes. And if anyone tells you they do, they’re lying.
But here is what I do know: I know in 30-50 years the stock market is going to be a lot higher than it is today. I also know the Federal Reserve is doing everything in its power to keep markets afloat. Between purchasing of assets, pouring liquidity into banks, keeping lending rates historically low, and starting their Main Street Lending program – they’re doing it all except throwing in the kitchen sink. The saying “Don’t fight the Fed” has never been truer than right now.
If you’re going to bet the market is going to have a significant and drawn out downturn, you better be sure of it. At this point in time, I am unsure whether the country has the fortitude to shut down the economy again in order to fight coronavirus. Because of that, I think it is unlikely we see another sharp -34% decline in the market. Here is what I’m focusing on and what I’m working with my clients to focus on.
Don’t Get Caught Up in Daily Volatility in the Stock Market
There is going to continue to be volatility for the foreseeable future. There’s no way around that. This sort of volatility is exactly why I keep my investment horizon at 30 to 50 years, especially for my younger clients. If they don’t need the money for decades, it doesn’t matter in the grand scheme of things if their portfolio is down -4.84% year to date when they’re 35. It’s not ideal, but decades from now it will be a blip on the radar. Markets, by their very nature, are not always going to go up.
Between COVID, social unrest, and the election, the next 6 months are going to appear “scary.”
Whichever side of the political coin you find yourself, you might be frightened at what will happen to the market if the other side wins. If you haven’t done so, please read this article I wrote last year detailing stock market performance and political party. That should talk you off the ledge.
Do Focus on What You Can Control
You cannot control the movements of the stock market. But you can control how much you are contributing to your retirement and investment accounts. As Warren Buffet famously said, “Be fearful when others are greedy and greedy when others are fearful.”
Now is the time to invest and continue investing. Riding out the tough times is one of the surest ways to investment success. Build up emergency savings and credit lines in the event you lose your job. Have a contingency plan in place in case that reality finds you. Dust off and update your resume so you can hit the ground running. Do not let yourself become a victim of this economic crisis as this sort of mentality can be devastating on your psyche.
Know that you, and only you, are responsible for your circumstances.
Don’t Open a Robinhood Account to Trade on Margin if You Are Not Well Versed in Advanced Trading Techniques
Don’t mistake speculation for investing. Investing is the act of putting your money towards something because you think it’s going to pay in the long run. What is happening with Robinhood right now is gambling, pure and simple. And when trades are happening on margin, things can go bad when you are not well versed in advanced trading and hedging strategies. Slow and steady investment wins are what win the financial race.
Do Make Sure Your Current Investment Plan is Going to Put You on the Right Path For Your Financial Goals
Did your portfolio have an overweight allocation in the entertainment, travel, or restaurant industries? You may want to rethink what having a portfolio weighted towards one company, industry, or sector can do when times are bad. Creating a well-diversified portfolio, while not the most exciting investment strategy, is a fantastic way to help you achieve your financial goals.
If you don’t have a well thought out investment plan, now is the time to create one.
Do Take the Time Now to Figure Out What is Important to You
Is working from home a dream come true? Or is it the opposite and you need to be in an office? Are you spending more time with your family? Take note of what has been great for you in this new normal and what you would rather not deal with if you didn’t have to. Begin figuring out how you can craft your life post-pandemic to reflect what you value. There is going to be a lot of opportunity in the coming years because of this pandemic.
Are you doing the things today to capitalize on it?
No one could have predicted what was going to happen in the first half of 2020. If you have been affected by the downturn – I feel for you and what you are going through. It’s not an easy place to be. But the good news is you have the complete power to turn things around. It may not feel like it right now, but you have a choice of whether to control your destiny. How incredible is that? Or the first half of 2020 can define you and your circumstances for the next decade - if you let it. I know of too many people who let the Great Recession negatively define their 2010s. Don’t let that happen to you. It can be easy to fall into that trap, and it’s an incredibly hard one to escape. Life doesn’t happen in a nice straight line - there are ups and downs. A great number of people are definitely in a “down” right now. Asking for help can be hard, but it doesn’t have to be. If you need help getting out of this “down,” I’m here for you. All you have to do is reach out and we’ll figure it out from there. Getting to the other side of COVID-19 is going to take a massive effort from all of us.
I’m ready to do my part.
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About The Author
Shaun Melby, CFP® provides fee-only financial planning and investment management services in Nashville, TN. Melby Wealth Management serves clients as a fiduciary and never earns a commission of any kind. Shaun has over 10 years of experience as a financial advisor in Nashville.