Pandemic pullback: Putting financial market changes into perspective

By Scott Studley, Principal, JDIMI Consulting 

The economic fallout from COVID-19 has been devastating, driving volatility in financial markets to hit record levels not seen since the Great Depression. It took only 22 days for the S&P 500 stock market index to sell off 30%. During this pandemic, 45% of investors were moving towards more conservative investments, with only a shy 21% taking advantage of the downturn to invest more aggressively. Already, the outlook today is different from this year’s first quarters, with markets having bounced back to pre-COVID highs and positive tweaks to forecasts into 2021. This is why it’s important to look at the financial markets from a historical perspective for guidance – and fortitude – during the current pandemic.

Looking back to 2007, we had a strong bull market before the crash started. Then the market fell off at about a 49% rate—and a lot of investors made mistakes during this time by panic selling. While it took five years for the market to get back to its high, it also created a lot of opportunity for investors to stay and make money during the recovery. In 2009, the market bottomed out, and what followed was one of the longest and strongest bull-market runs in history, lasting over 10 years.

However, the pandemic is not yet over and with second waves predicted, some people may still be asking themselves whether they should take out some or all of their assets. The reality is that it’s impossible to time the market and the health scare needs to settle before we get a clearer picture of the markets and what companies will come out the strongest. The first step would be to revisit your investor risk profile questionnaire and understand your investor style, patterns and any changes to risk tolerance. Risk tolerance tends to go down when the market looks bad but goes back up once it improves. Working with a Navacord Consultant can help you avoid emotional investment behaviour and deal more effectively with the current market situation.

Below are some additional tips for managing investment behaviour:

• Don’t adapt a hindsight bias—we are giving ourselves too much credit, we don’t remember our mistakes as much as we remember our successes.
• Don’t simply listen to financial forecasts and agree with people—they may not share the same risk tolerances or financial path.
• Track your own forecasts and keep a diary of your investments.
• Moving forward, try to think about what stocks will go up and develop a plan with your advisor.
• Make sure that your risk tolerance is commensurate with your portfolio and revaluate it regularly.
   

We can gain important perspective on financial markets by looking at historical precedence to determine the current situation, and where we might be in the future, in order to make sound investment decisions. 

Scott Studley, Principal of JDIMI Consulting, a Navacord Broker Partner, is considered to be one of the finest advisors in the financial services marketplace and is a highly sought-after authority in the corporate retirement marketplace. Scott also leads a team of fully accredited Investment Advisors who specialize in Group Retirement, Pension Planning and Financial Planning. He can be reached at [email protected].