Financial Planning in a Crisis: Recovery

Picturing a Market Recovery

You may be asking yourself, “When will the market recover?” or “What will a recovery look like and will it be worth the wait?”  These questions seem appropriate.  Without all the answers, let us give you an illustration: the line isn’t straight up, but rather a zig-zag pattern.  Let us remind you that each correction takes different amounts of time to come back, but if given enough time, they do eventually come back.  We can discuss the problems all day long, but unfortunately no one can tell you exactly when it will be.  Looking out, hopefully a year from now we will all ‘look back’ and see that we had another good buying opportunity in 2020 (in other words… increased share prices).  Consider the chart below which illustrates what happened after the Global Financial Crisis in 2008:


To illustrate a sample market recovery, visualize that you are at the bottom of a long staircase that leads to the Capitol Building (maybe 40 or 50 steps) and you need to climb to the top to enter.  As you walk up several steps you run into several others who are blocking your way.  In market-terms, these represent investors who were unable to sell, maybe trapped due to low prices, but now see current prices as acceptable.  As they step off (sell out of the market) you may be forced to ‘step down’ so that they can get by before you are able to pass them.  Get the picture?

As you continue upwards, maybe another several steps, a strong wind comes and causes you to drop a step or two (negative news releases about the economy, or perhaps a company’s revised earnings, etc.)  As the ‘wind’ settles down you regain your balance and proceed.  After a few more steps you are higher and all of a sudden you feel like jogging the next few steps (maybe this is a positive news report, such as a vaccine for coronavirus or a drug to help offset the symptoms).   Again, get the picture?

As you continue, at some point you may stop to catch your breath, and you ‘feel’ like you haven’t made any progress because the front door is still well out of reach.  Then, after a few more steps it starts to rain and you ‘hunker down’ for a few minutes to weather the storm (for instance, the market has stalled and doesn’t grow for a few weeks).  Eventually, however, you know that the sun will reappear, and the rain will eventually dry up (the market starts receiving positive news about the economy and corporate earnings are more predictable).  We could go on and on… as you take few steps up, you also from time to time are forced to take few steps back.

To finish the story, a loud warning speaker announces a tornado warning and you run back down to where there is a small storm shelter (maybe it’s an announcement of a recession that causes you go about half way back down again) and as you enter, you see that a few people are scared the shelter won’t protect them.  Others say that it will take too long and they flee all the way back to the start (and sadly some get blown away).  The next morning is a new day and you start walking upward again.  Eventually you do, despite all the detours along the path, reach the front door and enter the Capitol Building.  Sure, it took longer than you anticipated, but you made it!  As you walk in, you comment, “This is even better than I thought!”  Some friends you know are already there and you enjoy the visit.

We are all on a journey.  The above illustration may seem silly, but it’s representative of the zigs and zags of investing (and of many ‘other’ things in life).  Don’t let the journey, the detours, the ‘weather’, all the noise, etc. discourage you from continuing onward.  Eventually, with persistence (and proper planning) you will reach that goal.