The System is Still Solid

Greetings! I trust that this finds you well in every way.

Week before last we had recovered all losses on the S&P 500 caused by the virus. In one day alone last week, the market gave back 5.9% of it. On February 19th the S&P reached an all-time high of 3,386.15. The COVID19 panic drove the S&P all the way down to 2,237.40 on March 23rd, which was a decline of 33.9%. What does this tell us? It tells us that the last 100 or so days have been inarguably the most volatile period investors of our generation have ever experienced, and we’re not done with it.

When I got into the business 35 years ago personal investing was fairly uncommon. Relatively few people were investors and bought or sold stocks and bonds. Actually, there were just a handful of mutual funds and now there are over ten thousand mutual fund-like investments. Back then mostly wealthy people owned individual stocks and bonds.

I’m no economist, but it appears to me that two major changes occurred that lead to big parts of the world’s population becoming investors, with more on the way. The first change was a move away from corporately provided pensions to corporate-sponsored 401k and the move from employers providing to employees providing for retirement themselves. The government started this movement by initiating the IRA in 1974. The responsibility of employees providing for their own retirement is global now with a few exceptions, mostly involving government / municipal employees and even that’s on its way out. The need for us to fund retirement ourselves has made people investors. The second change has been the advancement of capitalism in emerging countries and the development of the global economy. This facilitated a growing middle class around the world and they want all of the stuff we enjoy. Phones, banks, Q Tips, cars, swimming pools, retirement… you name it.

Neither of these changes is going away in the foreseeable future. And the sources to continue to grow capitalism and fuel its engine being the stock and bond markets, are in demand and growing. It’s a matter of supply and demand. And that’s why although it gets pretty bumpy and at times whipsawed along the way, I believe the markets to be a place small guys like you and me can develop wealth, security and fund retirement over time. And friends, as time passes it will be more volatile and conversely, offer greater opportunity.

If you are wondering what and if you should do anything now after what you’ve experienced in the last one hundred days, ask yourself these questions.
Have my long-term goals changed?
Am I comfortable with volatility and do I understand it?
Do I understand the trade-off between stability and growth?
Do I have sufficient cash reserves on hand?

If you are challenged by the questions then you need answers and I can help you in this, so call me.

Best regards,

Jeff Christian CFP, CRPC

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