My Humble Attempt at an Interesting Quarterly Update

Very few people enjoy reading quarterly updates. The first quarter of this year was bad, and the second quarter was good. You all know the basic reasons why.

It is good to look back and reflect, here are some items I thought you might find interesting.

Over the past 25 years, we have had several big drops in the market.

This chart illustrates the dot com crash, the financial crisis, and the virus crisis.

After being down about 35% from all-time highs, we are now only down 10%. This is why you keep seeing "gut-check" notes from us. If you panicked or were close to throwing in the towel on investing during the last one, now might be a time to make some adjustments. We can cut risk and possibly put in some investments with some downside protection if of interest to you.

You might be seeing people saying that the valuations are too high. That might be the case. But it is also important to note that the market does not assume just a one year holding period, and the forward price to earnings ratio, just the next 12 months. Stocks are long term investments, and the collective wisdom of all market participants seem to be predicting we will comeout of this tragedy eventually.

I like to think of the facts from this chart often when investing. The market usually drops 14% during the year from top to bottom.

So, when it happens again, do not let yourself think that something changed. It does this all the time.

Getting in and out trying to predict what the market is going to do is reckless. You should have an asset allocation you can stick to, and if you are going to be depending on your investments anytime soon. You probably should have some of the money invested in some safer things besides just stocks.

You can see the US stock market was recently down 34%, and now we are just down 6% year to date.

Market drops are a regular feature of investing, not a bug.

Stocks tend to go up about 70% of the time per year. Fairly good odds, but nothing is guaranteed. The longer you invest, the better your results are likely to be in the stock market. If you do not have a long-term outlook or holding period, stocks probably are not a good idea.

The stock market is not the economy. Note the relatively small part of the economy is in some of the most virus impacted sectors.

This data is more telling with the unemployment problem from the virus. If you have a child, you might want to show them this and follow up with "study hard". People without a college degree are more than twice as likely to be unemployed right now. But no guarantee, college-educated unemployment still seems to be up around 400% from prior numbers.

Ok, maybe this will not be interesting. But inflation is obviously a concern with all the money printing for the bailouts. However, deflation is as scary or worse than inflation. It is a delicate corridor and falling on either side could be a big problem. Right now, inflation does not seem to be an issue, but that could change, especially as we get into the new normal of post COVID life, whatever that means. Things could cost more due to higher labor demands and benefits, goods could be scarcer, environmental fees, higher taxes, etc.

Rates have moved so low that I am now thinking about refinancing a mortgage I refinanced less than six months ago.

I have paid over 7% in the past, the next one will probably start with a 2… 

Please check your rates and maybe encourage family and friends that are renting to consider purchasing a home if it might fit their situation. It does not look like rates are going up anytime soon, but to me borrowing for a home at sub 3% seems like a nice potential opportunity.

If you made it this far, thanks for looking, and please let us know if you would like to connect. We love to help!

Your Team at ISC Financial Advisors

All the slides are available online from JP Morgan – it is their now famous Guide to the Markets series https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/insights/guide-to-the-markets