LGT's Profit Sense

Creating a plan and sticking to it can be one of the most difficult tasks with regards to financial planning. From the very beginning there is a challenge: where to start? There are multiple starting points, differing financial aspirations, and a countless amount of essential expenses that vary from person to person. Decisions must be made early in order to start moving towards the goal, and decisions will shift as life changes.

One of the most important aspects of a plan is understanding all potential scenarios during market fluctuations, in-turn leading to a heightened sense of financial awareness during turbulent markets. This heightened awareness presents itself in two separate forms: peace and anxiety.

And a well-rounded plan will almost always bring you peace in knowledge of the path to financial success.

Yet, even the most financially-savvy investors have felt some anxiousness during the unprecedented volatility this year because the current environment has never been seen before. With a sound plan the element of suspense is removed from the equation. It has been repeatedly proven for financial returns and mental health that remaining invested with consistent, planned rebalancing is superior to trying to time market entry and exit points.

The only way to identify a market bottom is to compare the current values to those preceding, so a plan of waiting to invest until the market hits a bottom is the opposite of a plan – it is a guess. The effects of the coronavirus further shine a light on the need for a creation and adherence to a comprehensive financial plan rather than emotional reliance upon hypothetical growth.

(Chart of S&P 500 index performance 1/1/2020 – 5/7/2020)

While the above historical chart of the S&P 500 index can project a positive outlook, it is still worthy of noting the short timeframe – 88 trading days just this year.

In that short amount of time the S&P 500 lost over 33% total return, but also gained back over 27% total return. Looking at this dip and recovery alone could convey that the worst has already occurred, which might not be off-based.

Taking into consideration the figures in the final chart though raises the question of whether or not we continue the positive growth trend through the end of the year.

Escaping perils of the coronavirus throughout the economic re-opening seems unimaginable, so there is absolutely a chance for the market to take another hit – or two – before a true economic and market recovery is sustainable.

Again, the economic toll is due to the response of preventing the spread of the coronavirus, so there is a reasonable vision to get the economy back on track. So the growing issue has become just this: with no scientific advances towards a cure, how will the economy flourish with the lingering threat of coronavirus?

The solution for treatment and stopping the spread of the virus has not changed since the beginning of the pandemic, but those same preventative measures must be enforced when getting individuals back to work or else we face certain catastrophe.

Which brings everything back into perspective when viewing personal wealth – many companies have started to file for bankruptcy; unemployment claims are still at historic levels; over 75,000 Americans have died from the coronavirus just this year.

With everything going on in the world, it is important to be able to focus on things that matter. If you have a plan, stick to it. If you do not have a plan, we would be honored to provide guidance for a prosperous financial future.

For anything additional, please contact any one of our financial advisors or visit our website. Stay informed about future developments by frequently visiting our COVID-19 Financial Updates page.