U, V, or W?
By FirstWave Financial
As the stock markets rebound from the recent lows they hit over a month ago, questions arise about the shape of this recovery (U, V, or W) and whether it is a good time to invest during times of high market volatility.
Mark DeCambre, in his May 11th article – https://on.mktw.net/3dUdVlN -suggests that U-shaped recoveries are as rare as unicorns. Research performed by Haver Analytics reveals that in the past 10 recessions, going back to 1950, the recovery has always been V-shaped, at least initially. Whether the worst is behind us or we have yet to experience a double-dip recession in the shape of a W is open for debate. At least the researchers seem to agree that we are not headed toward a lower-case “n” shaped future.
The analysis in the article referred to above focuses on the change in U.S. GDP growth, as the measure of recession and recovery. While a change in U.S. GDP growth is correlated to changes in stock values and thereby to our WealthConfidence, there are many other variables at play in each of our own personal circumstances. If you have been able to work from home and stay healthy, your excitement about getting out again as the economy re-opens will help support a V-shaped recovery. If you or members of your family are part of the over 20 million Americans who have lost their jobs since March, your personal recovery may be less certain. It has been said that when your neighbor loses their job it’s called a recession, when you lose your job it is called a depression.
So how is one to invest during periods of high market volatility like we are now experiencing and how can you protect your portfolio?
Stock prices fluctuate through time, and there will be periods when prices fall. However, a major event in one market may not affect stock prices in all markets—which is one reason to hold a globally diversified portfolio. At the end of 2018, the global stock market included more than 15,000 companies worth an aggregate $49.9 trillion, with approximately half (54%) of the value of global stocks in the U.S. The other half comprises the developed non-U.S. and emerging markets. This represents a significant opportunity.
In addition, other asset classes, including fixed income, can help minimize the overall volatility and price impact on your total portfolio.
Having an understandable strategy that accounts for market declines can help you look past daily news and focus on the long-term. A key to making this work for you is to decide upon and implement your investment strategy before a recession like we are experiencing is happening, not in response to it. That way you can more objectively balance your return objectives with your risk tolerance and increase the likelihood of a successful long-term investment experience and your WealthConfidence.
We are grateful for the relationship we have with you and appreciate the trust and respect that we share. Please feel welcome to contact us for any and all reasons as we get through this time together.
You should not assume that any discussion or information contained in this publication serves as the receipt of, or as a substitute for, personalized investment advice from FirstWave Financial. A copy of the FirstWave’s current written disclosure statement discussing our advisory services and fees is available upon request.