It would be foolish to pretend that the world is the same as it was last month. We are simultaneously dealing with a pandemic/health crisis and a potential financial crisis. One of these issues alone would create challenges but dealing with both at the same time creates an added level of complexity. To make matters worse, it is very difficult to gauge what effect COVID-19 will have on the overall economy over the short and medium-term. All of these crosscurrents are creating extreme volatility and uncertainty in the markets.
What are policymakers doing?
The Fed cut interest rates to 0% and launched a plan to buy $700 billion in US Treasury bonds and mortgage-backed securities. This buying program is called quantitative easing, and it’s intended to add money directly into the economy. How? Interest rates affect the cost of borrowing and savings rates. When interest rates are cut, the cost of borrowing goes down — mortgages, credit card borrowing, and auto loans become less expensive. At the same time, the benefits of saving go down, because the interest earned on savings accounts and certificates of deposit (CDs) is lower. Both of these effects create an environment where people are motived to spend/invest more and save less.
What should I do?
For a brief moment, let us be your expert reminder on how to handle anxiety regarding your investments. If you had invested in the stock market from 1998-2018, your investment would have tripled. If you had missed the best 10 days you would have had half as much and if you had missed the best 20 days you would have LOST money! And many of the best days happen immediately after the worst days. Don’t panic, you are invested for the long term and doing it the right way. Our commitment to you is that we will continue to work to create value for you in this unique environment.