The second quarter of 2020 proved to be just as amazing as the first. But, while the stock market’s devastating decline dominated Q1 headlines, the story of Q2 tends to read more like the opening line of Charles Dickens’ A Tale of Two Cities:
“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way…”
It's a testimony to the timelessness of Dickens’ writing that, now, more than 160 years later, the words — at least the superlatives, anyway — describe the world we live in now. Case in point: the general theme of Q2, in which we saw how quickly global markets sold off and came back — even as economic and sociopolitical headlines continued to stoke bonfires of ongoing upheaval.
From a stock market perspective, Q2 saw the markets make a swift recovery (in fact, their best quarter since 1987), spurred on by glimmers of progress toward a coronavirus vaccine, and steps announced by the Fed to aid the economy. Some have likened the turnaround to Rip Van Winkle, who could have slept through the extraordinary turmoil and awakened in June with only minor changes to his 60/40 stock/bond portfolio. We’re also seeing predictions that 60/40 portfolios have entered into a lost decade of paltry performance. Still other forecasters (perhaps to cover all grounds) suggest we’re in a time with “equal reasons for caution and optimism.” No kidding.
On the economic front, a completely different story that left many trying to understand how — as the stock market was doing so well — economic indicators could be so negative. As our friends at Dimensional Fund Advisors explain, it’s possible because markets are forward-looking, while the economy’s focus is historic.
So, what’s it going to be for the rest of 2020? As always, with respect to your investments, we have no idea what to expect as an encore through year-end. Instead, we agree with Jason Zweig, who wrote this in his recent “Intelligent Investor” e-newsletter:
“The first half of 2020 should remind us that investing isn’t about conquering markets; it’s about mastering ourselves.”
We know markets are highly likely to deliver inflation-busting returns to those who can patiently stay the course while riding out the inevitable downturns. We also know investment success can take longer than you might think – potentiallymuch longer.
The initial assumptions we make about investing are often off target until we take the time to think them through. As such, it’s important to remember the evidence on how to persistently participate in markets, lost and found. We also continue to recommend allocating your wealth appropriately (for you) between the market’s higher-risk, higher-expected-return extremes, and the sheltering calm of more stable, but lower-returning holdings.
Have we mastered the right balance for you and your personal financial goals? If not, let us know, so we can help you revisit your ideal allocations. In the meantime, let others conquer the markets, as you consider these additional words from Zweig:
“To be an intelligent investor is to recognize that you’re in a lifelong struggle for self-control – an unending effort to keep yourself from yielding to fear or greed, believing that you know what the future holds or letting short-term news knock your long-term plans off track.”
Again, let us know if AMDG Financial can help you and your financial plans remain on track.