The COVID-19 pandemic has affected the markets and economy like few single events in recent history. Everything changed after the pandemic hit – markets turned from bull to bear, entire industries were obliterated, millions of jobs were lost, and the United States plunged into recession. Of course, that all takes a backseat to the devastating health effects and tragic loss of life it has caused.
It came upon Americans so fast and so furiously that few had time to process the financial implications. But roughly six months later, people have had time to reflect, and there is one major regret. A new survey by Allianz revealed that 52% of Americans regret not having more of their savings protected from market loss.
While the market did bounce back and recover all of the losses within the next six months, the US remains in a recession and there are concerns about a tech bubble or another crash. Investors who are concerned about more volatility in these uncertain times should take this opportunity to review their portfolios, while keeping one key point: that markets have always bounced back to produce strong performance in the long run.
Long-term, the numbers are on your side
The type of volatility we saw this past spring is a hard thing to stomach for many investors watching their portfolios drop 30%, 40%, 50%, or more in the span of weeks. But it provided a great example of why it is so important to ignore short-term fluctuations and stay focused on the long term. From the low on March 23, the S&P 500 Index (INDEXSP: .INX) has gained back all of its losses and then some – as it's now up about 6% year to date. If you sold out of some stocks or investments at the bottom, you locked in your losses and never got the returns back.
The fact is, the markets, over the long term, have been remarkably resilient. Over the last 10 years through to 8 October, the S&P 500 has an average annual return of 11.6% – that, of course, includes the COVID-19 crash. If you want to look really long-term, the S&P 500 has posted an average annual return of 8.4% over the past 30 years through 8 October.
Now, if you are in retirement or have a shorter time horizon for whatever reason or goal (college payments, for example), the short-term volatility becomes more of a concern. Your time horizon would affect your asset allocation. Whereas someone who's 10 or more years out from their goals can ride it out, people with a time horizon of five years or less may want to allocate their assets accordingly to add more safety and stability.
Reassess your investments
The market crash wasn't the only thing that happened when the pandemic hit – its impacts went much deeper than that. The shutdowns were temporary, but the effect on certain industries was much longer-term. Restaurants are still affected by social distancing protocols, as are movie theaters, airlines, retail stores, hotels, theme parks, and entertainment venues, to name a few. Banks are looking at interest rates in the 0% range through 2023, according to the Federal Reserve. On the other hand, social distancing and the pandemic in general have accelerated e-commerce and the companies that operate within it, as well as companies that produce technology that allows us to live and work in this new normal.
In other words, the pandemic has facilitated longer-term societal shifts. So, as an investor, it is a good time to reassess your portfolio with a macro view of the markets. Know which industries are growing and which are more resistant to a recession, but also be aware of those spaces that could suffer longer-term effects. Which stocks you invest in always comes down to a granular look at the company, but having an awareness of the larger macro forces will better inform your choices.
If you keep these ideas in mind, you'll likely have fewer financial regrets.
