Perspective on Recent Market Volatility
Investing is always challenging, and the past few days and weeks have demonstrated the challenges with particular difficulty. While the coronavirus’ threat to the global economy is viewed as temporary and the health risks for most people are not severe, the coronavirus has significantly disrupted supply chains and reduced the global demand for travel and business activity. The second order effects have been significant capital market volatility and the collapse of Saudi Arabia and OPEC’s determination to fix the price of oil. While it is not possible to accurately predict when this particular “crisis” will subside, we can look back and remember how markets have reacted to prior events like the current one. These slides illustrate how markets have reacted to prior crises and the timeline for recovery.
The good news is that following simple investment principles and a process-based approach has served investors well in this environment. Identifying future cash flow needs and reserving cash or high quality bonds for anticipated needs over the next five years at least can provide investors peace of mind that they don’t have to liquidate long-term growth oriented investments. Measuring and defining personal risk tolerance enables investors to recognize and accept the current downside as well as the future upside of their investments. No process is perfect. However, the questions that we ask in developing a thorough Investment Policy Statement are designed for times like this.
Lastly, In every “crisis”, opportunities emerge both in investing and financial planning. We will be methodically considering these opportunities and bringing them to your attention in coming weeks. Thank you for the opportunity to serve your family’s investment and financial planning needs. If you have any particular questions or concerns and want to discuss these with our team please let us know.
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