The 2020 Market Roller Coaster Looks To Be Far From OverInvesting Insights
If you like roller coasters then 2020 has been the year for you, and you’re in luck - the 2020 market roller coaster ride might be far from over. This market roller coaster has been fueled by the very serious global pandemic and the impacts COVID-19 has caused to global economies. The rebounds were driven by massive government stimulus and what appeared to be a quicker than anticipated recovery in economies around the world. Now, to finish the year, we face a presidential election with an outcome that we may not even know for several days or weeks with promised challenges and lawsuits by both parties. In addition, we are facing the resurgence of COVID-19 case counts in the U.S. and Europe. This leads many of us to wonder: When will this ride end? Some might be asking themselves: Can I get off?
Unfortunately, we cannot answer the first question, we do not know when this ride will end – our best guess is that it will continue for months until at a minimum the pandemic is under control. The second question we can answer – trying to time the “jumping off” spot and when to “hop back on” is not only dangerous but also very likely to prove to be a very risky move. Instead, we continue to believe that the smart investment choice is to focus on the long-term and where you need to be in 3, 5 or 10 years and to try as best you can to ignore the day-to-day or week-to-week ups and downs of the market. Looking back, had we concluded that we needed to get off the “market ride” in mid-March and then gotten back into the market as quickly as June 1 of this year your account would be 15% lower (based upon the monthly returns of the S&P 500) than it would had we stayed invested and focused on the long-term. There are no shortage of studies and economists to tell you the impact that missing the best market performance days has on a portfolio…we have quoted this statistic many times but it deserves to be reiterated due to the powerful impact it has:
“Over the past 15yrs, in a portfolio entirely invested in the S&P 500, a portfolio that is not invested for the 10 best performing days of that time period would cut their return by over half”
With that said, being a long-term investor certainly does not equate to inaction through volatile times. When volatility strikes there are many actions that can be taken. Amongst them, looking for opportunities to harvest losses in order to better manage tax obligations and rebalancing portfolios which serves two purposes: first, to ensure to maintain your targeted risk profile by adjusting back to your target asset allocation and second, rebalancing back to target allocations forces you to buy low and sell high.
We are preparing for increased volatility that might be caused by any one of several things:
- A surprise outcome in the Presidential election. Remember the polls were wrong in 2016 and that could happen again.
- A long, drawn out election in key states leaving uncertainly in the outcome of the election.
- A series of law suits filed by both Republicans and Democrats in an attempt to protect or re-shape the election outcomes using recounts, invalidation of mail-in ballots and who knows what else.
- Uncertain outcomes in key Senate races that will determine which party has a majority of the Senate come January 3rd.
- Continuing spread of the coronavirus threatening the economic recovery.
- Bad news (delays) in the development and approval of a vaccine.
In summary, please brace for a continuing “market roller coaster ride” with heightened levels of volatility. The presidential election comes with uncertainties however these market dislocations will be temporary as the party of the president has proven to not be a determinate of long term investment returns (see chart below).
We also have the continued uncertainty of the COVID-19 pandemic which we believe will continue to cause market disruptions until vaccines are approved, the distribution of vaccines are proven to be effective and we can start to see an end in sight for this terrible pandemic that has impacted the entire world.
So sit back, take a deep breath, hold on and “please keep your arms and legs inside at all times” for the reminder of the ride. For our clients, please rest assured that we will continue to “keep your car on the tracks” as we actively look for ways to add value by capitalizing on opportunities to harvest tax losses and continuing to rebalance your portfolios as necessary to meet your long-term objectives.
For information purposes only. Opinions expressed herein are solely those of Droms Strauss Wealth Management, unless otherwise specifically cited. Material presented is believed to be from reliable sources, but no representations are made by our firm as to another parties' informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. Past performance may not be indicative of future results. Indexes are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.