First Priority: Save the Patient
We initially wrote an article about revisiting your financial plan during this unprecedented stock market volatility. However, now that the market has recovered significantly, we decided to instead focus on what all of this stimulus could do for the economy in the long term. We still think it's a good time to review your plan with your advisor because a financial plan should be able to weather the type of drawdown we experienced during the first quarter. We strongly believe that reexamining a plan during times of uncertainty is important because market corrections allow us to think more clearly about the risk we are comfortable (or uncomfortable) taking in our portfolios. Securing your financial future comes into greater focus and examining the long-term plan in light of intense volatility is a worthwhile exercise that often provides comfort to investors.
Our government used stimulus in a truly new way to bolster the economy coming out of the 2008-2009 financial crisis. We saw QE1, QE2 and even QE infinity. There were varying opinions and concerns about the long-term effects of pushing so much liquidity into the financial markets. The recovery from the financial crisis was the slowest economic recovery since the Great Depression, but we did recover. Now more than a decade later, we responded to the COVID-19 crisis with an even greater stimulus package.
The Federal Reserve, Congress and Treasury Department have worked together to send checks to individuals, create forgivable loans to small businesses, send stimulus money to specific troubled sectors and push liquidity into fixed income markets. The total price tag is over $4 trillion, with talks of even more stimulus to come. Warren Buffett recently said, “QE (Quantitative Easing) is like watching a good movie, I don’t know how it will end.” We’d be lying if we said that we knew exactly what to expect, but we do have some ideas about specific responses to a few potential outcomes: