What the heck is going on?
Unprecedented times yield unprecedented behavior, in markets and in people. Kevin Grogan shares his views on the market impact of this global health crisis and his tips on being savvy when it comes to reading headlines.
Hello. Thank you for tuning in to Ask Buckingham, an ongoing video podcast series where we invite thought leaders across many disciplines in wealth management to respond to the questions on your mind. My name is Tim Maurer and I have the privilege of hosting these short Q and A discussions as the Director of Advisor Development for Buckingham Wealth Partners. I want you to know that I’m also a wealth advisor with more than 20 years of experience and a client of the firm.
The volume of information coming at us these days is so vast and the pace at which that information arrives is so fast that it’s a struggle to keep up with what you need to know to make the best decisions for you and your family. Our hope, therefore, is that this ongoing conversation will become a source of clarity in the midst of the confusion, in the midst of the chaos, and provide insight that helps you better understand what’s going on in the world financially and otherwise.
Today we’ll be hearing from Kevin Grogan, Buckingham’s Managing Director of Investment Strategy, and here’s the question we’ll be tackling. Kevin, what the heck is going on right now in the markets and the economy?
Yeah, great question and I think it’s a question to which the answer changes almost every day and maybe even more frequently than that. We’ve seen a great disruption here recently with the coronavirus or COVID-19. We hear different names for it, but we’ve seen a lot of disruption in markets and in particular a lot of volatility. We’ve seen more volatility here recently than we’ve seen probably since the financial crisis or since the depression in terms of the number of ups and downs in volatility we’ve been seeing here recently, and that’s really been the story here.
We’ve seen the stock market decline over the past several weeks and we’ve even seen lots of volatility even in traditionally safe fixed income markets. We’ve seen the rates on safe treasury bonds go down and then come back up and then go down again. We’ve seen just a lot of volatility across all asset classes here recently.
Kevin, what do you think is going to happen from this point forward?
Yeah, it’s a great question. I think the answer to that question lies in terms of what’s going to happen with the virus moving forward. If we can get this out of the way early, I don’t pretend to be an expert on infectious diseases or anything along those lines so I don’t have knowledge about where the disease will move and the virus will go from here. If you follow the foremost experts in this space, they would say that there’s a lot of uncertainty with respect to where this goes from here.
In terms of potential outcomes, I have read everything from a best case scenario where this virus winds up being not as contagious and not as deadly as what we all fear here today, all the way to a worst case scenario where it becomes just totally unmanageable for our healthcare system and it becomes much worse than what we expect today and then lots of potential outcomes in between.
I think what’s impacting markets and the reason we’re seeing lots of actions taken by government officials already is just due to the tremendous uncertainty that that has resulted from the virus in terms of we don’t know what the potential outcomes will be from here.
Well, considering all the uncertainty out there, Kevin, what is it that investors can do to feel a greater sense of certainty right now? How can we apply the knowledge you share with us this afternoon?
The biggest thing I think investors can do is building the risk of market declines into their financial plans to begin with. It’s important to build an asset allocation that matches with your ability, willingness, and need to take risk. If you’ve done that, then you’ve taken into account the possibility and the likelihood, in fact, that the stock market will decline again at some point in the future but if you build a solid plan that already takes these into account then you’re ahead of the game with respect to preparing for this downturn and future downturns.
I mention that because at Buckingham we don’t make predictions about where the market will go in the short term. We couldn’t have predicted that a global pandemic would cause the stock market to decline as much as it has, but we did know in advance that at some point in time there would be another bear market. Bull markets don’t run forever and we knew at some point we’d see the market pull back due to some unknown reason. We couldn’t have known the reason but we knew that the stock market just doesn’t go straight up over time.
Kevin, you mentioned that we’re not in the business of predictions. What do you recommend to investors who are seeing, every day, headlines about predictions that are being made? Maybe people aren’t watching financial television or any television at all because it’s every headline you read. What do you suggest we do as investors in the face of all those predictions?
Yeah. I think the biggest thing, at least what I try to do, is that if I see somebody on TV, or on the news, or on the radio, making a bold prediction about where the virus is going to head next, that is a tell that they aren’t very knowledgeable about infectious diseases because the most knowledgeable people are the people who are the least certain. That tends to be true not just in this circumstance but in lots of circumstances. The people who know a lot tend to be less sure about the future than the people who know less, in general, I’ve found.
Interesting. Well, Kevin Grogan, thank you so much and thank you for tuning in to this episode of Ask Buckingham. If you have a question that you’d like to see us address, you can do so by navigating to the website, askbuckingham.com or emailing your question to firstname.lastname@example.org or just make it easy and click on the thing that’s in the upper right-hand corner right now. There are no dumb questions but, unfortunately, there are plenty of poor answers out there right now. Our hope is that in giving you straight answers to your questions, you’ll be able to apply that knowledge in pursuit of good decision making. Please, follow us and, by all means, Ask Buckingham.