Is This Time Different?
This is a common question when things seem volatile in the world, and we know there is a chance you’ve asked yourself this recently. You are not alone. The issues of the day are complex but the answer to your question may be somewhat simple – yes AND no. Every situation and scenario of the time is slightly different than those of the past, so in this regard, yes, it is different. But at the same time, no, it is never different because markets work over the long term based on fundamentals and those don’t change.
If we look to history, we can cite the litany of events that shook the world in that moment. The best examples of recent events we’ve all lived through was the unprecedented global Coronavirus pandemic as well as the current period of inflation like we’ve not seen since the 1980s. It’s a safe assumption that these universally impactful events (not to mention potential happenings in your personal lives) have created some stressful moments. However, despite these two significant events, as investors, we’ve experienced positive stock market returns in 4 out of the last 5 years. Looking at investment returns in isolation, you might conclude we’ve been through a relatively easy period.
Coaching is one of our most understated, but valuable, responsibilities. People are inclined to act, to respond, to fight, to run, to freeze in panic, to do SOMETHING in stressful times. We often decide what action to take at the exact wrong time – when emotions are high. We talk a lot in our meetings about helping you make sound financial decisions, and sometimes those decisions include holding your hand during the uncertain times and assuring you that no action is the right action. Think of your Woodward team as the emotional surge protector between you and your hard-earned life savings.
Downturns are normal. In fact, in the past decade a 10% or greater pullback has occurred in roughly half the calendar years (1). Because of this fact, each of our clients has a portfolio that is designed to withstand prolonged downturns in the equity market. Every client portfolio is comprised of a mix of stocks and bonds tailored to their unique risk tolerance and long-term goals. You may think of the stocks in your portfolio as the engine of your car – they help you get where you’re going. Bonds on the other hand are your vehicle’s safety features and serve as airbags in the event of a crash, mitigating injury.
We do want to assure you that we are always here to discuss any concerns you may have and provide education on how markets react and why. Maybe this exact situation has not occurred in the past, but our response to volatility remains the same. History has shown us that staying true to a well-diversified portfolio that is built based on sound financial planning for your long-term plans is the best reaction to uncertain times. It’s how you build wealth. And that’s precisely what we’re here to help you do.
(1) Source: https://www.schwab.com/learn/story/market-corrections-are-more-common-than-you-think