Volatility, Optimism, and Q1 Market Details

There’s no question we’re all living in unsettled times. Global citizens and the world economy are under stress, and uncertainty is heightened in all aspects of our lives. People are worried about their health, and that of family, friends, neighbors. Some have temporarily or permanently lost jobs or taken a hit to their income. Leaders of many companies are forced to make difficult decisions. Social distancing is impacting the human need to connect with others.

The impact on the global economy is significant, and the depth and magnitude of the downturn is unknown. Unemployment claims are rapidly increasing and estimates of global GDP decline are significant. The stock market and many portfolios are down sharply, with most asset classes in the red. Unprecedented economic intervention by the U.S. government, which will itself have long-term consequences, appear to have stabilized markets as of quarter-end, but uncertainty persists about the virus and its impact on health and the economy.

Planning for Volatility

Good planning, however, considers such outlier events, both in projections and portfolio construction. This market volatility falls within the range of possible short-term outcomes that are embedded in WealthStep’s portfolio planning assumptions. Each crisis has its own unpredictable and unique causes and trajectory. Some investors will naturally be tempted to capitulate and abandon their investment policy, turning paper losses into real locked-in losses. More than the market volatility itself, that flight response is the real risk to long-term goals.

WealthStep has seen many prior challenging periods before, and our videos and blogposts are designed to guide you through this one as well. This too shall pass, even if the time frames aren’t clear.

Reason for Optimism

Despite the challenges above, there is also reason for optimism. Humans are amazingly resilient and creative. While scientists are rushing to find a vaccine and treatments, hundreds of millions of people around the world have united to control what they can by combatting the virus with social distancing, and it is showing results… sometimes the best offense is a good defense. Companies are rushing to produce more masks and ventilators, and in the meantime, states, individuals and countries with less need are shipping what they have to those in greater need.

People in isolation are maintaining and building face-to-face relationships with technology. People are trying to keep the economic engine running by safely supporting their local businesses as best they can. Portfolio rebalancing and tax-loss harvesting has already added significant value. And most impressively of all, the bravery and dedication of health care workers, food clerks and others critical workers are saving lives even ask they risk their own.

There is also more good news on the horizon, but it will require patience to see those headlines. Stay focused on taking care of the health of yourself and yours in the short-term. Stay focused on the long-term by riding out the economic and investment storm. Maintain hopeful but reasonable expectations in the short-term, in part by leaning away from predictions that this will all clear-up quickly. It’s better for everyone’s mental health to be realistic and possibly positively surprised than repeatedly disappointed