Tim Buckley: These are unprecedented times. We are living with the uncertainty, stress, and challenges of a global health crisis combined with an orchestrated economic shutdown.
We know the slowdown is not caused by a structural problem, but we don’t know how long it will last. Even epidemiologists can’t pin down when the virus will subside and we will return to some sense of normalcy.
In the meantime, unemployment is surging and the economic data will get worse. Prepare to hear double-digit unemployment numbers and significant contractions in GDP—20% or more for the second quarter.
But, don’t overreact and don’t try to time it. Remember the markets are forward looking and much of this news is already priced in. Sure, equity markets could get worse if the slowdown extends further, but also realize that the markets will rebound far before economic data improve. Beyond being lucky, you’ll find the markets are close to impossible to time. And, you don’t want to miss those big rebounds.
All of the negative news and market volatility can weigh on your mind. Here are a couple things you can do to weather this storm and position your portfolio for growth:
- First, take a big breath and don’t panic. Now is not the time to make big changes to your portfolio. It might be tempting to move from stocks to cash, but you won’t know when to return and you will miss most of the rebound. Hold your diversification.
- If you can stomach the risk, consider rebalancing into equities on a regular basis. Long-term expected returns on equities are at levels not seen since the Global Financial Crisis and will likely outperform bonds and cash over the next ten years.
- Now keep your spending in check. Avoid making large purchases right now from your portfolio as the opportunity cost is too high. You won’t want to lock in losses and miss the great growth opportunities after the storm. This also applies to taking loans from your retirement plans. Now overall, make sure you’re disciplined with your budget. Of course, it’s fine to top off your cash reserve if needed.
- Finally, tune out the noise. It’s hard to avoid the constant influx of news about the virus and its impact, but don’t let it consume you. Resist the urge to check your portfolio with every dip in the market. Focus on your health and your safety first.
Now don’t feel like you need to go it alone; Vanguard is here to help you:
- You can visit our website for fresh analysis on the markets and our latest recommendations.
- You can also reach us by phone or email with specific questions.
- If you have a financial advisor, now is a good time to chat with them.
Thank you for your trust and partnership, and stay healthy.