You may have noticed that we’ve posted a couple new videos on our YouTube channel and the Illumination Wealth Blog lately. It’s pretty easy to understand why people are craving financial advice right now. The financial markets have experienced significant drops followed by small recoveries. The coronavirus (COVID-19) pandemic is real. It is affecting our daily lives and the economy as a whole.
In this article, I want to sum up some of what I talk about in my latest videos. I will also embed both of the videos in this post for you to watch. My goal is to help my clients stay calm and think rationally in this time of uncertainty. I know it’s not easy with everything that is happening. I hope to provide some helpful historical insight while also expressing my empathy. This is affecting our business and our lives, as well. We’re all in this together.
We don’t know exactly what the future holds, but we also know what you are feeling in times like this. It is scary to worry about your health and the health of your loved ones. Then, there’s the financial stress and anxiety as businesses, schools and other organizations are closing to follow social distancing and self-quarantine regulations.
At times like this, it’s important to focus on the things that are within our own control. The simplest suggestion is to not panic. There have been many wars, viral pandemics, natural disasters and economic recessions throughout history. These events cause fear and lead to temporary financial declines, but we always come out the other side as the economy recovers over time. We don’t want to panic and turn temporary declines into permanent losses.
There’s a saying that goes “the stock market takes the stairs up and the elevator down”. Declines are usually swift while recovery is slower, but it all balances out over time and the long-term trajectory is always upward. Just look at the past decade. We were experiencing solid economic growth and a true bull market over the past 11 years since the lowest point of the Great Recession in March of 2009.
This next video looks at some specific data to provide a broader historical perspective on the current market drops.
We’ve had some bumps in the road like the China trade war last year. There’s no doubt the coronavirus will have a more significant and lasting impact than some of these lesser events. And yes, we really won’t know the full story until the virus is contained and a vaccine is readily available. I’m not here to make any predictions, but we should all be mentally and financially prepared for more downside to come. It will likely get even more volatile and that wouldn’t be out of the ordinary when comparing other financial crises throughout history.
Unfortunately, the headlines are designed to induce more fear. Stay informed, but turn off the non-essential news. Tune out the noise as much as you can. That is something we can control. We want to eliminate as much emotion from our investment decisions and from our financial life as possible.
A well-diversified portfolio across all asset classes should be prepared for times like this. Any good investment plan will account for bear markets and temporary declines. It’s impossible to avoid them. Stick to your plan and behave properly when it comes to overarching investment decisions. Some of the world’s wealthiest individuals like Warren Buffet have made their fortunes during bear markets, not bull markets. There are things you can do to not only weather the storm, but actually come out the other side in a stronger position than before. You can enhance your wealth position during these down market corrections.
For example, interest rates are historically low. It’s a great time to refinance mortgages and other debts. Look to invest in distressed real estate and business. Look for other opportunities to utilize your assets during this bear market so you can benefit during the inevitable recovery period.
It’s a simple fact that cash and bonds do not provide the growth necessary to increase wealth—at least not in a way that can help you achieve financial independence or an early retirement. There are reasons why we invest. The ups, downs, ebbs and flows are part of it, so it’s wise to build a sound financial strategy that will survive the bad times and allow you to enjoy the good times and prosper all the time.
If you are in need of financial life advisement and wealth management planning, the team at Illumination Wealth is here to provide the support and guidance you need. Things are crazy right now, but don’t panic and use this time to make smart financial decisions. Contact us today to schedule a free 30-minute introductory consultation with one of our leading advisors.