The last time we experienced a Bear Market was during the Great Depression. After that, it was during The Dot-Com Bubble. Despite being a young man in my financial career, I remember those periods clearly. I recall watching the NASDAQ fall 79% from peak to trough over three years. The S&P 500 fell by more than 40% during that same time. It was an absolute bloodbath.
The one difference between now and during the dot-com bubble is that interest rates were relatively high. Because of that, the Fed was able to lower interest rates and give some relief to the economy and markets to hopefully turn things around. Believe it or not, there were asset classes making money during that period.
However, The Great Recession was different. There wasn’t much to make money, almost as if cash was the only thing in existence. And, right now, we’re in a completely different situation. The Fed is raising rates in a slowing economy because of runaway inflation. The reality is, we could be in for another shake-up this summer.
I hear some people try to compare The DotCom Bubble to the period during COVID, which, in my opinion, wasn’t even close to the same thing. COVID market issues began in March, and by April or May, the markets had basically gotten back to reality again. Compared to The Dot-Com Bubble days, there were 2-3 years (depending upon what period you want to look at) where there were bear market rallies, and everything seemed stable.However, you can’t see the future. That’s the problem. It’s easy to begin to believe everything is back to normal, and the market will continue to go up. Then the markets regress again, turning into the cycle of one step forward and two steps back. During this timeframe, I’m worried most about the person who is in or getting ready to enter retirement. Why? Because mistakes made during that period could derail your retirement plan for the rest of your life. You may not be able to recover. So, the decisions that you make today are critical.
While I don’t want create unnecessary panic, I do want people to realize that, if we relive history again, we need to have our game-faces on and our retirement plans stress-tested to make sure that they can withstand the economic conditions we are may face. If you are already a client of Osiwala Financial Group, your retirement plan has completed this process, and you know how your plan will react to different economic environments. If you have a different Financial Advisor, make sure to ask if they have stress-tested your plan. Have they called you for a review and shown you how your plan will withstand these volatile times? If not, take the time to find an Advisor (click HERE to schedule a time with an Osiwala Financial Group Advisor) and do a historical stress test inside of your plan. And, if your retirement plan fails, change it!
It’s not time for panic. It’s time for planning and making sure you’re protected through these volatile times. There’s no secret sauce. It’s all about creating a financial plan, testing it through these time frames, and learning what gives you the most security. What planning techniques give you the best chance of surviving The Dot-Com bubble and the Great Recession? It’s not just about surviving, but about being able to thrive on the other end of it because you did the best thing throughout those time-frames.
Finally, don’t let fear drive you to make quick, last-minute decisions without putting much thought into them. There are financial salespeople out there who are pushing different products, tools, and ways to scare you into whatever high-commission product they are selling. Be very careful because this is the time when the vultures come out and attack. Don’t let fear drive you to make quick, emotional decisions. Instead, make sure that you have a plan in place that is stress-tested, unbiased, and not tied to a commissionable product that will marry you to a decision you make. I would even argue that one of the most important things you could do right now is remain flexible because things can change quickly. Be prepared to alter your plan. That’s how you survive difficult times like this.
If you have not stress-tested your plan and your Advisor hasn’t done this for you, what needs to happen in order for you to do so? Can your plan survive conditions that mimic The Great Recession? The Dot-Com Bubble? What if inflation continues to soar? Would you feel better knowing how your current retirement plan and allocations would react to different market conditions? If your Advisor hasn’t had this discussion with you, contact Osiwala Financial Group at (248) 828-8000 or click HERE, to schedule a conversation, and learn more about how you could benefit from stress-testing your retirement plan.