Is the 2020 financial crisis different? Yes. Does the advice change? No.
Everything is different. The advice remains the same.
These are uncertain and scary times for all of us. And for each one of us for our own personal reasons. The one thing we can all agree on is that everything about this time looks and feels different than anything we have seen before.
But when it comes to the financial advice of what to do - that remains the same. Regardless of what is going on. And following it can bring comfort and confidence in weathering the storm and avoiding costly mistakes that can hurt you in the long run.
Here's what you need to keep in mind when it comes to financial crises and why financial advice is the same, even when everything else looks and feels so different.
Is this time different from the last? Yes. Crises are always different from each other.
A crisis, by definition, is unexpected and unique. The best way to remind yourself of that is to think back to every crisis you experienced yourself or through people you know. When you think of past events like 9/11 and the housing crisis - those all felt different than each other. They felt like the end of the world to those living through them. Events that cause financial crises are unprecedented. They are things that we have never seen or experienced before, which is why they are so scary and create such feelings of panic.
Yes, the 2020 financial crisis that we are currently experiencing brought on by the Coronavirus Disease is very different from anything we have seen before, and there is no way to say what will unfold during and after the crisis. Just like every other crisis we have experienced, this time is different because there is no way to predict what will happen next. We know that a 2020 recession is likely to occur, given the impact on the economy, but we can't predict what effect it will have on the markets or how long it will last.
We can't predict the future, so we can't predict the markets. Financial markets are unpredictable by nature.
The reality of markets is that they jump up or down at any time, and those jumps may last days, weeks, months, or even years. And the underlying causes behind them are never the same. Markets were rising reasonably smoothly for quite some time, which may have created a false sense of security that markets always go up or don't move erratically. But even the last 11-year bull market was different than any other prior bull market run.
Does the financial advice around what we should do change? No.
First, let's clarify what financial advice is and what financial advisors do. Good financial advice is about the decisions you make, not the markets. If financial advisors could predict what the financial markets are going to do, then they wouldn't be advisors - they would be retired billionaires living a life of luxury.
Advisors guide your decision-making process based on financial principles and guidelines. How do they know what to do? They learned, usually, through certification courses, investment education, and working with clients over many years. They have become experts in how financial products work and when to use them, so you don't have to be an expert on all the ins and outs yourself.
What if you don't have a financial advisor?
If you aren't working with a financial advisor, here is some guidance to help you with your decision-making:
Don't watch the financial markets.
Were you watching the market every day before it started to go down? If yes, then now's a good time to stop. And if no, then why are you starting now? In general, there is no reason to watch the financial market daily or even weekly unless it is part of your job, and you are getting paid to do it.
Don't make portfolio changes.
When the market goes down quickly, the temptation to sell investments becomes stronger than ever. Unless you need the money for immediate and essential needs, don't. Now is not the time to make changes to your portfolio.
Before making other decisions, talk to an advisor.
Sound financial advice is independent of markets, but it does depend on individual and personal situations. Talking to an advisor can help. When things are crazy, having someone to talk to about them - especially someone with expertise - is reassuring. A good advisor will listen to your concerns and steer you away from making any rash decisions, like selling all your investments in a down market.
Advisors can also help you evaluate other parts of your financial life. Insurance, estate planning, and taxes are just a few of the non-market-related decisions that an advisor can help you with, in addition to planning for investment decisions that make sense once the markets calm down.
Financial advisors understand that you can't control what will happen in the world and what the markets will do in response, but you can control the decisions you make. And that is what makes them invaluable. The reason you pay for financial advice is to provide discipline around those decisions - especially during difficult times. Right now, we are all facing difficult times, but having a dedicated advisor who knows you and your life is essential because, in life, there is always uncertainty.
Farther is here to help. Talk to us, and we can guide you through these difficult times.