The markets are charting new territory in response to uncertainty following the emergence of COVID-19, and the unprecedented market volatility may have investors wondering what it means for their financial futures and how they can move forward.
Many investors are understandably concerned about the prospect of an ongoing global crisis, but a look back at economic downturns from the recent past may offer some insights into the long-term impact of the virus.
Are recessions inevitable?
Ups and downs can be a natural part of the economic cycle. Recessions, in particular, may have a significant short-term impact, but historically, markets tend to rebound in the long-term.
Consider the market’s performance following two recent downturns:
- When the U.S. housing market’s boom went bust in 2008, an economic slump followed. More than $2 trillion in global economic growth was lost during the Great Recession, which is regarded by many economists as the most significant downturn since the 1930s. However, by 2013 the market had recovered and continued to set higher records through February 2018.
- The markets were devastated after the terrorist attacks on September 11, 2001. The New York Stock Exchange (NYSE) and the Nasdaq were closed for trading until September 17 — the longest shutdown since 1933. When they reopened, the impact was significant — an estimated $1.4 trillion in value was lost in the first five days of trading. But the economy quickly recovered, and in less than a month, the Dow Jones, the Nasdaq and the Standard and Poor’s (S&P) Index had returned to pre-9/11 price levels.
In each case, investors who took a short-term view may have missed the long-term benefits of these market recoveries.
What should investors consider today?
For investors seeking to protect their long-term interests, staying the course may be the best option — portfolios can have long horizons and it is not uncommon for them to experience bear markets on occasion.
Pursuing a diversified portfolio is an evergreen investment strategy, and investments made in real estate may offer additional stability during downturns as these assets are less vulnerable to short-term market fluctuations*. Commercial real estate investments, in particular, tend to provide the security of longer-term tenants — a potential benefit during periods of uncertainty and economic challenge.
Although parallels may be drawn between COVID-19 and past crises, it’s important for investors to remember that the markets, by their very nature, are unpredictable. History can offer context and lend perspective, but the future has yet to unfold. After all, it was Warren Buffet who once said: “We have no idea — and never have had — whether the market is going to go up, down or sideways in the near- or immediate-term future.”
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