Part 2: What is a Recession and What Does It Mean to Us?

In our last post, we talked about what a recession actually is.  This week, we will talk about what it means to us as investors.

As you know, we do not give individual investment advice on the Blog since each of you have different situations and different plans.  But there are a few ideas which all of us can use.

1. Stick to the BIG plan but be ready to adjust the SMALL plan.

As we have talked with all of you over the last quarter, we have continued to emphasize the importance of sticking to the plan!  But let’s be honest - that is really easy to say and really hard to do!  For many of you that have been through significant stock market volatility (mostly downward!) before or have decades until retirement, you lost a little sleep and didn’t look at the spreadsheet with lots of red too closely.  For others, this has been a time of significant concern and second guessing. This has been the first significant market downturn since I joined LFS and I too have had times of concern and second guessing – and I do this for a living!   At the end of the day, if you are too worried about your investments to sleep, we need to make a change.  We can and will do that with you. 

Remember that we are for you – regardless of where you fall on the “worry” scale!

2. Diversification is more important than ever. 

We often talk about this and as you look at your own results, you can see why we do.  Those fixed income bond holdings have been  steady, but not superb performers over the last few years – as planned.  But all of us have been really glad we had them over the last several months.  Large cap stocks and technology have recovered the fastest so far.  Other asset classes and industries hopefully have more upside to come.   Expect some portfolio re-balancing to come as asset classes perform very differently through this period. 

3. There are opportunities for those with a strong stomach. 

It’s really hard to invest when the market is terrible rather than when it’s improving but if you can bear to do it, there are plenty of choices.  For those of you that are dollar cost averaging every month and/or re-investing your dividends, you are automatically getting some of the upside.

As you know, we recommend a strong cash or cash reserve position. For some of you, that’s to ensure that you have ample cash for living expenses without having to sell into a bad market.  For others, it’s more like a little dry powder for some good potential market opportunities.  These market opportunities might be stocks you have always wanted to own but deemed too expensive or funds in industries you think might be near the bottom of the economic cycle (maybe airlines or lodging) or asset classes like small cap equities.  It’s a good time to have a “wish list” and maybe some limit orders!

We also have started talking to some of you about some interesting new funds which are designed to take advantage of the new world we all live in now.  For example there is an ETF which holds stocks in Covid testing companies and potential therapeutics/vaccines.  There is also a brand new ETF which holds stocks in companies which enable employees to work from home (think ZOOM and cloud computing).  These are high risk funds but might be interesting to some of you.  I wouldn’t invest my entire life savings in these but I might put a few dollars here.  There has to be some positive news about this pandemic!  If there are other industries you are interested in, challenge us to find some options for you!