Drawing from experience to navigate uncertainty

Every quarter we send a letter to our clients to set context around recent market activity.  This quarter, we are posting our letter here since it offers some reminders about how our experience and contingency planning get us through difficult times that we feel may benefit everyone. 

These past several weeks have reminded us that there is humility in facing something we have never seen before. On behalf of our clients, we’ve immersed ourselves in the potential economic implications of COVID-19 and drawn upon the insights we have gained in other crises to provide guidance. While what we face now is unprecedented, the ways in which we respond go to the core of what we know from experience.

Back to basics

Our experience tells us that it is very difficult, but especially important, to rely on fundamentals at times like this. The disruption that COVID-19 brought forced all of us to get back to basics quickly:  focusing on health and safety, food, supplies, our friends, families and communities. From a financial perspective, many of the critical things that we put off during more typical times suddenly take on a greater sense of urgency. For example, make sure you have emergency cash reserves set aside and have estate documents and healthcare durable powers of attorney in place or updated as desired.

Preparation and discipline

Over the years, clients have often asked us what we worry about in terms of the economy, and the answer is: this. Not a pandemic specifically, but this type of unforeseen event, that is swift and dramatic and outside of our control. This is why we plan and prepare for a range of circumstances. This is why financial plans are stress-tested across a range of market conditions, including the type of short-term volatility we are experiencing now. This is why we invest for the long-term while ensuring that shorter-term needs and contingency planning is in place.  It is also why we spend so much time on asset allocation and getting true diversification in our portfolios.  Diversification lessens some of the volatility and drawdown we face in this environment.  The investment discipline inherent in rebalancing portfolios and managing tax-loss harvesting uses the market volatility brought on by uncertainty to your long-term advantage.

Patience required

While first quarter economic data, including GDP and unemployment, is strikingly bad, we know that this is the result of an intentional response to the health crisis, not an economic crisis. The Federal Reserve and Congress have responded with short-term remedies to individuals and small businesses. The medium-term impact is only speculation at this point, though we know that over the long-term the economy as a whole is resilient. Consumer activity is always a strong driver of economic activity and it is hard to predict if they will respond with pent-up demand or some wariness once the economy restarts.

We continue to wish you good health and strength as you weather these times. We are eager to get back to the office and see our clients and colleagues again. As always, we appreciate your confidence in us and feel privileged to help you through difficult periods like this.

The Advisory Group

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