The 2020 election cycle is in full swing. It’s primary season, which means the general election is right around the corner. Before you know it, the two major parties will have their conventions and we’ll be heading to the ballot box. Of course, you may already have election fatigue. From the local level all the way up to national races, candidates are already flooding television with political ads. As is the case in most presidential elections, candidates are also talking about the economy. They may make claims about what will happen in the economy if they’re elected or that the markets might decline if their opponent is elected. That kind of rhetoric is common during elections, but is it accurate? Will the outcome of the election impact your portfolio? Should you worry about the election? Or perhaps even change your allocation to protect yourself. Below are a few tips to keep in mind through the rest of the election year: Keep history in perspective. Often when there is one issue or story dominating the news, like the presidential election, it’s easy to focus solely on that story. It’s in the news and on social media so much that it feels like it’s the most important issue in the world. However, the truth is that this country and the stock market have been through many presidential elections. In fact, in most of those years, the markets performed positively. In fact, since 1928, there have been 23 presidential elections. In 19 of those years, the S&P 500 had a positive return.1 In fact, in the four instances when the markets did have negative returns, there were also economic events happening that may have driven the performance. In 1932, the country was in the midst of the Great Depression. In 1940, the country was entering World War II. The markets declined in 2000, which was the year George W. Bush ran against Al Gore. However, the bursting tech bubble in Silicon Valley may have had more influence on the markets than the election. Finally, in 2008, the S&P 500 also declined, but that was the year of the financial crisis. The takeaway is that market declines can happen in any year. The fact that it’s an election year may cause news stories and rhetoric, but the market is likely driven by investor concerns and economic conditions. Focus on the long-term. Your investment strategy was likely designed for the long-term. Perhaps you’re saving for retirement or some other goal that is years or possibly even decades in the future. Over that period, you’ll likely see times of market volatility. Whether it’s an election year or not, it’s always helpful to focus on the long-term during challenging periods. Market downturns happen, but they are always temporary. There are two common types of downturns: corrections and bear markets. Corrections are losses of 10% or more. Bear markets are losses of 20% or more. As you can see in the chart below, the average correction loses around 13% and the average bear market sees a loss of around 30%.2 However, the duration of each is also important. A correction, on average, lasts around four months. After that period, there is an average four-month recovery period to recoup the losses. Bear markets last longer. They have an average duration of 13 months with a 22-month recovery period.2 Market downturns are never pleasant, but they are temporary. Keep an eye on the long-term and stick to your strategy. Don’t make gut decisions. It can be easy to make a gut, impulse decision when you hear and see stressful news on a regular basis. It might be tempting to sell your investments and move to asset classes that have less risk and volatility. However, a move to perceived safety could do more harm than good. The chart below shows how the average equity investor has fared compared the S&P 500 over different periods of time. As you can see, the index always wins, sometimes by a wide margin. 3 Why does this happen? Primarily because the index stays invested at all times, while the average investor is constantly moving in and out of the market based on gut decisions or attempts to avoid loss. While investors may miss some declines with this strategy, they also miss out on gains. Staying invested usually leads to better long-term performance.
Ready to protect your portfolio this election year? Let’s talk about it. Contact us at Walker · Wells. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation. 1https://www.thebalance.com/presidential-elections-and-stock-market-returns-2388526 2https://www.cnbc.com/2018/12/24/whats-a-bear-market-and-how-long-do-they-usually-last-.html] 3https://www.marketwatch.com/story/americans-are-still-terrible-at-investing-annual-study-once-again-shows-2017-10-19 Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
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The coronavirus is here. It’s impacted every corner of American life and is likely to continue to do so. Colleges have closed. States are closing schools and banning large gatherings. Businesses are closing or cutting hours. Consider some of the stunning developments from the past weeks:
Worldwide, as of Friday, March 13, there are more than 139,000 confirmed cases of COVID-19, which stands for coronavirus disease 2019. More than 1,800 of those cases are in the United States, with 135 new cases in the prior 24 hours.5 The pandemic has had a significant impact on the economy and the stock market. On Friday, February 21, the Dow Jones Industrial Average (DJIA) closed at 28,992. On Thursday, March 12, the DJIA closed at 21,200. That’s a decline of 7,792 points, or 26.87%, officially putting the stock market in bear market territory. What can you do to protect your nest egg from the coronavirus? There’s no way to predict the movement of the stock market, especially in the short-term. However, there are a few things you can do to minimize your exposure to risk. Don’t panic. It may be tempting to sell all your investments and look for safety. However, take some time to explore your options before you make an impulsive decision. Bear markets happen, but they’re temporary. The average bear market lasts 13 months and is followed by a 22-month recovery.7 However, not all bear markets last that long. The 1987 bear market that contained the famous “Black Monday” crash lasted only 3.3 months and was followed by a 30-month bull market. The 1990 bear market that was triggered by the Gulf War lasted 2.9 months and was followed by a 113-month bull market that saw the S&P 500 rise by 417%.8 Of course, there are longer bear markets as well. The 2007-2008 bear market that was triggered by the financial crisis lasted 17 months. It was followed by the bull market that just ended, which lasted nearly 11 years and saw a 400% increase in the S&P 500.8 It’s impossible to know how long this bear market will last or how far the markets will fall. However, if history is any guide, the bear market will end at some point and the markets will recover. If you pull completely out of your investments, you may miss the recovery and the beginning of the next bull market. Review your allocation. When’s the last time you adjusted your allocation? Many people become more risk averse as they become older, even without the threat of the coronavirus. You don’t have to sell all your investments to reduce your risk. You may be able to achieve that goal by making slight changes to your allocation. If you haven’t adjusted your allocation in years, now may be the time to do so. You may want to slightly adjust to assets that are historically less volatile. A financial professional can help you find the right allocation for your risk tolerance. Consider risk protection tools. There are some financial vehicles out there that are immune to the coronavirus, and all other forms of market risk for that matter. For example, there some types of fixed annuities that allow you to earn interest based on a stock market index’s performance. If the index performs well, you may earn more interest. If it performs poorly, you don’t lose money. Again, a financial professional can help you determine if these tools are right for you. Ready to protect your nest egg from the coronavirus? Let’s talk about it. Contact us today at Walker · Wells. We can help you analyze your investments and implement a strategy. Let’s connect soon and start the conversation. 1https://www.google.com/search?safe=off&tbm=fin&sxsrf=ALeKk000JGptVKZkoj4o7x5-9JnJ9uG0oQ:1582753229486&q=INDEXDJX:+.DJI&stick=H4sIAAAAAAAAAONgecRozC3w8sc9YSmtSWtOXmNU4eIKzsgvd80rySypFBLjYoOyeKS4uDj0c_UNkgsry3kWsfJ5-rm4Rrh4RVgp6Ll4eQIAqJT5uUkAAAA&sa=X&ved=2ahUKEwjzzIagl_DnAhVHaM0KHR-vA0YQlq4CMAB6BAgAEAE&biw=1366&bih=641&dpr=1#scso=_6OVWXrG8OdeqtQad9q_wAg1:0 2https://www.msn.com/en-us/money/markets/trump-reportedly-furious-about-stock-market-plunging-on-coronavirus-fears/ar-BB10o1pg 3https://www.marketwatch.com/story/why-a-supply-shock-is-biggest-stock-market-worry-as-viral-outbreak-continues-2020-02-25 Annuities contain limitations including withdrawal charges, fees and a market value adjustment which may affect contract values. Annuities are products of the insurance industry; guarantees are backed by the claims-paying ability of the issuing company. Guaranteed lifetime income available through annuitization or the purchase of an optional lifetime income rider, a benefit for which an annual premium is changed. Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 19868 - 2020/3/2 |
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