Kiplinger.com:
When you follow the stock market closely, it can feel like at any moment, a pandemic, a war, an environmental disaster, or any number of “breaking” headlines could trigger a subsequent financial tsunami.
The good news is that financial advisers are a trusted source for stability through all climates. Follow an experienced wealth manager’s guidance, and it’s likely that any disaster eventually will find a peaceful recovery.
To keep things simple, relying on proven tips is often the best way to avoid panic, manage risk and monitor whether one’s financial planning is on track. While keeping up on current events is essential, a deep dive into any topic can often leave one gasping for air.
So, in keeping with today’s news, the Coronavirus is a timely example of how the stock market recovers even after a worldwide pandemic. Unemployment hit record numbers, corporate profits plummeted, and 18 months later, COVID cases still are not screeching to a halt. The best answers as to why the market is holding up so well and how you should react to the changing economic climate are below.
- Stay positive. The markets are forward-looking. Thus, never look at current data and say the markets should be as bad as the data suggests.
- Markets hate uncertainty. In times of insecurity, even during a pandemic, the market shifts to secure assets, such as bonds. So, while volatility is a certainty, most matters of crisis typically have a short-term impact, and the market has ways to maintain stability.
- Recessions are temporary. Even as people lost jobs and employees were furloughed, big businesses and organizations worldwide bounced back relatively quickly. Life eventually does go on – this much we have seen recession after recession. So, stay calm and follow the course.
- We learn from experience. Many other health pandemics have wreaked havoc on our financial security. We have learned that science prevails with each pandemic, and the world emerges with greater knowledge. Consumer confidence rebuilds. And the economy grows.
- The world wants to thrive. Over the past year and a half, we have seen nations, business sectors and local communities join with the common goal to grow the economy. People want to keep businesses thriving. Strong economies keep people employed. And employed people keep more businesses growing. It’s circular, really, and it’s human nature to keep moving forward.
- The high-risk industries make up a small portion of the GDP. Every job is essential. However, every job isn’t weighted equally. Only 10% of the GDP includes high-risk industries. Compare that to half of the GDP being low-risk industries. Translation: The most influential businesses are still flourishing.
- FOMO (Fear of Missing Out). During the pandemic, we experienced the most significant one week in the stock market in four decades. And the U.S. stock market reaches new records often despite ongoing uncertainty. The point is that people do not want to miss out on the recovery. Thus, the market will always rally as no one wants to wait until it is too late.
- The government and the Federal Reserve intervene. These two entities will only let us fall so far before providing preventive measures. We have a proven toolbox to stabilize the economy, as demonstrated by last year’s PPP loans, bond purchases, paycheck assistance, stimulus checks and more.
- Diversified financial planning is essential. A diversified asset allocation that fits one’s circumstances is the best remedy to avoid panic. It’s proven to be nearly impossible to guess what the markets will do next; thus, maintain regular check-ups with an adviser to assure your portfolio meets your needs.
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