We are obviously in a rapidly evolving environment with this Covid-19 virus. Stocks have pulled back significantly. We thought a little longer-term perspective might be helpful at this point. If we look back 3 years and 5 years from yesterday on the S&P500 SPY exchange traded fund, it still has positive average annual returns of 2.1% and 4.9%. So, investors are still slightly ahead over those time frames in spite of the 2020 negative return. Bonds have similar positive returns: 3.7% and 2.7% for the last 3 and 5 years respectively. Smaller capitalization stocks, as evidenced by IWM (the ishares Russell 2000 etf) have lagged these other two asset classes and are down 7.9% and 2.08% for 3 and 5 years.
If you recall the 2008-2009 financial crisis, it was a similar chaotic environment to today. However, from the bottom in 2009, stocks have averaged an annual return of over 14%. Many investors were panicked in early 2009, sold everything and went to cash, and unfortunately missed that terrific run-up in stocks. The difficulty most had was knowing when to reinvest their cash, so they ended up selling low and buying much later at higher prices.
All of that hopefully helps frame where we are today. There are no easy answers when complete information on the virus just simply is not available. Our experience over decades of investing and managing clients’ funds is that staying the course has by far been the most profitable strategy. As we mentioned in a previous email, most clients have bonds and cash, which are doing just fine right now. Stocks will fluctuate – they always have and always will. It’s not easy to navigate a market like this, but we do believe it will pass at some point – we can’t speculate when – and businesses throughout the world will regroup, profits again will grow, and stock values will follow.
Finally, please note that we are now working remotely. This is something we have planned for over the years, not knowing when it might be necessary, so we all have the ability to do this without a disruption in our work. We may have a person or two at the office at times as well. You should always be able to reach us either by phone or email. As more and more businesses go this route, hopefully the spread of the virus can be slowed.