THE DIFFERENCE BETWEEN THE MARKET AND THE ECONOMY
The news and reports will continue to get worse from here. The economic fallout from the Coronavirus will continue to have an impact for several months. While the news will continue to be worse, it is important to know that the market will begin to turn positive before the economy begins to recover. As a reminder, a company’s stock trades not based on what they have done in the past, but how investors project they will perform in the future. Expectations of future profits allow some companies that have never sniffed a profit to trade at valuations among the highest 500 companies in the world. In that same light, the market will turn around before the economy as the prospects for future earnings return.
Whether all of the bad news is now “baked in” to the market or not, there will be a shift in time. The coming months may/will bring some unwelcome news, but at some point, the pendulum will swing back the other way. The initial stage of a market recovery generally occurs before the economic indicators show a reversal. And when it does, the recovery and expansion have historically been swift, dramatic, and unpredictable. Being properly invested during this quick turnaround will attribute to a significant percentage of growth overall for many investors. That is why we will continue utilizing equities within client portfolios, we don’t know when the exact bottom will hit, but we are confident that it will hit, and our clients are prepared to make the next right move.
We don’t know when the exact bottom will hit, but our clients are prepared to make the next right move.
Due to the fallout from COVID-19, some companies won’t survive or will be very dramatically impacted on a permanent basis. The nature of the investment options we utilize automatically creates diversification away from your portfolio being heavily invested in just a few companies. In reality, most of our clients hold hundreds of companies in their portfolio through mutual funds, exchanged traded funds (ETFs), or securities that they own in their portfolio. This diversification will allow many of our clients to ride out market volatility.
For those with time on your side, I recommend that assuming you can afford to do so, you keep contributing to your retirement accounts. One shining light during this period is that continued saving creates an opportunity for you to buy more shares of your investments than you could previously, something that has historically paid off in the long run.
If you would like any additional information from me, or anyone on our team, feel free to reach out directly to billy@billycardwell.com
Billy Cardwell, CFP®
Billy Cardwell is the Owner of Aurora Financial Strategies, a financial advisory firm based out of Kokomo, IN. He can be reached via email at billy@billycardwell.com. Investment Advisory Services are offered through BCGM Wealth Management, LLC, a SEC registered investment adviser. This blog does not constitute advice. This is not an offer to buy or sell securities. Advisor is not licensed in all states.
