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Everything's Going to be Alright

| October 07, 2019

Everything’s Going to Be Alright

 Maybe you remember the lyric from the Bob Marley song, “No Woman, No Cry.” It came to mind while I was pondering some of the conversations I’ve had recently with clients and friends about the prospect of a recession. My point to them was simply this, everything’s going to be alright.

The song is about a man, who comforts his beloved, telling her not to cry while he’s gone. The same phrase, in a different context highlights what I think is important to remember about the economy. It goes through cycles: expansion, peak, recession, trough. There it is and it’s not that complicated. The tricky part is attempting to know when the next cycle will ripple through the economy, so to answer the question, is there a recession coming? Why, yes – of course. I have no idea when it’s going to arrive, how severe it’s going to be and when it will end, but I know it’s coming which gives me this advantage – I can prepare for it. Any strategy to address the prospect of economic contraction will look differently for every investor, in my opinion. The point is, to get a strategy.

One you have a thoughtful plan in place, it might make it easy to avoid reacting in ways that hurt your chances of success. Legg Mason researchers took a look at market performance over a 20-year period, from January, 1998 to December 2017. That span represented 5,052 trading days. The researchers tracked the S&P 500 and found that missing ten of the best performing days cut the overall investment return by roughly 50-percent.

Think about it. People who stay invested, even during all the highs and lows were rewarded and remember, this span included the steep corrections during the early part of this century as well as 2008.

I sometimes hear people say, “The market appears a little high right now, so I want to wait for it to come down, before I get invested.” Then there’s the conversation around the prospect of a contraction – “I think there’s a recession coming, so I want to get out, then wait until things get better, before I get back in it.” Either way, the investor is creating the possibility of missing the best days of performance and missing potential gains.

My belief is, volatility will likely remain a feature of the securities markets. It’s possible to address how it impacts your portfolio and maybe the first thing to consider is, when do you plan to use the money you’ve invested and for what?

A portfolio for legacy purposes should look differently than one for income, or another one for growth and every individual will have different thoughts about risk, but trying to predict the future is tough stuff. This part is not so difficult – average stock market returns are mostly positive over time. The economy will contract, sooner or later, then it will expand. Maybe it’s true that no one knows when those flex points happen until after they’ve passed. Perhaps the best advice is, expect markets to move up and down and up again and allow yourself to believe that everything’s going to be alright.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. Past performance is no guarantee of future results. Please note that individual situations can vary.  Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.