This past week, as has been the last year and a half plus, the stock market was very volatile. Why? From trade talks, to the Federal Reserve rates, to the global economy, these factors all seem to be playing a part. However, from those factors comes the theories from people of all sorts - news pundits, politicians, entertainers, distant relatives....you get the picture.
As an advisor, I try to have my "ear to the ground" on all of the financial talk. When we have a bit of volatility, the one word that always comes up is the dreaded word - RECESSION. The last recession was the "Great One", so it is still very fresh in the minds of investors. And rightly so! It is money many have worked their lives for, and now expect to some day enjoy it in retirement.
However, because very few predicted the last recession, and got burned, it seems that MANY more are just racing to be the "I told you so" go to person for predicting the next one. If only it was that easy.
Recently, we had what is called a Yield Curve inversion - something that has been a precursor to previous recessions. This is where the long term interest rates of bonds are smaller than those of a shorter term. When it comes to investing, the shorter term bond is "normally" going to be the more conservative investment with a lower interest rate, because, in a sense, it's easier to see what is going to happen in the shorter term, than maybe 10 years from now. Having a lower rate on the longer term bond, signals that the future economy might not be so bright. However, this is no guarantee, and certainly is not a guarantee that we are currently in a recession or one is right around the corner.
This is where one of the important roles of a financial advisor comes in. No - not because we can predict a recession any more than the next person. But with the knowledge we have, we take a broader picture of what is going on and help develop a plan for when a recession comes. Why a plan? Because, a recession is a natural part of the economic cycle. It will happen. However, with a plan we can look at your prior experience with previous recessions, and dive into your risk tolerance, so that when the recession occurs you we be a little more comfortable.
We know bad news sells - but that doesn't always mean you have to panic and sell with it.