Are you and your portfolio prepared for the next crisis?
The next catastrophe is right around the corner. What should we do?
The Data: North Korea (and the possibility of nuclear war) have dominated recent headlines. And it's not just Kim Jong-un causing concern; we've witnessed some extraordinary and sometimes terrifying events this past decade. The Financial Crisis. The rise of ISIS and terrorism. Tsunamis and nuclear reactor meltdowns. Devastating hurricanes. Escalating tensions with Russia. Each crisis can have a traumatic impact on the lives of many people. Aside from the human element, how do markets react? The chart below sheds some light on this question. The chart evaluates every crisis event in the modern era— the Great Depression and all other financial crises, World War I, II and all other wars, natural disasters, political crises, etc.— and tracks market performance pre- and post-crisis. On average, markets trend down leading up to a crisis and drop precipitously at the onset of the crisis (the dotted line at the midpoint on the chart).
Historically, the worst seems to be over approximately one month post-crisis, when we start seeing signs of recovery. On average, markets have recovered to pre-crisis levels at around 6-7 months, before moving up higher.
What this means to you: Crises are alarming by nature.
Risk is scary and loss is painful. Every new catastrophe feels uniquely despairing; that “this time is different;” this time, there is no path to recovery. Can my wealth withstand this crisis? With markets, a little historical perspective can go a long way. We can't control history, events, or markets. Crises occur and markets plummet. All we can control is our behavior and our decisions. A well-constructed portfolio that carefully manages risk, combined with a strategy you can follow even in unnerving markets will allow you to weather any storm you encounter. Create a smart plan, and stick with it. People rebuild. Markets recover. We have, in fact, been here before.
The foregoing content reflects the opinions of Plum Pointe Wealth Management, Ltd. and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct.
Historical performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.
All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.