So far, the market rebound during 2020 has looked similar to what we saw following the market bottom in 2009. Many people were surprised to see such a quick recovery when economic conditions are still shaky. In the chart below, I compared the percent change from the low in 2009 and 2020 (Data source YCharts).
Past performance is no guarantee of future results. Market represented by the S&P 500 index.
The cause of the selloff was completely different during 2007-2009. But what is similar is the market began to rebound before economic conditions fully recovered. For example, the market hit the lowest level on March 09, 2009 and unemployment hit the highest-level during October of 20091, 7 months later! In 2009, if you waited till unemployment reached the highest point, you had already missed a 60% rally in the market2. The market will always price in future conditions, good or bad.
Should you continue to invest in the market? It depends. There’s no crystal ball that will tell you what is in store for the next 6, 12, or 18 months ahead but we do know what has happened in the past. Betting against economic growth has yet to work out for any long-term investor.
What can you do to prepare? Evaluate your individual accounts and their goals. For example, maybe you have an investment account for a child that may go to college in the next couple years, it may be a good time to reduce your risk if you have not already. Or maybe you are fresh out of college and started a 401(k) plan with your work that you do not plan on touching for 40 years, could be an opportunity to increase risk.
Keep money in cash? My online savings account offers 1.05% interest and I don’t expect it to stay that high for long. The Fed has set their short-term benchmark at 0% and it looks like it going to stay there for some time. Currently I keep about 6 months expense in my savings and invest the rest.
2020 will most likely continue to be a difficult year for most. There have been difficult years in the past and there will most likely be more in the future. Before you make irrational decision it’s important work with a professional who can help guide you. As John Wooden once said, “Confidence comes from being prepared”.
Sources:
1U.S. Bureau of Labor Statistics. Link here
2TradingView S&P 500 chart. Link here
Chart data from YCharts. Link here
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. No strategy ensures success or protects against loss.
