Ask any football coach and they will tell you one of the most sought-after physical qualities in a player is the combination of great size with lightning-fast speed. Those who possess an ideal mix of size and speed are generally the toughest players on the field to bring down. They’re exceedingly difficult for the opposing team to contain precisely because of those physical attributes – particularly when a single player possesses each in abundance.
The coronavirus-fueled volatility bedeviling financial markets right now presents retirement savers with the same problematic combination of great size and speed. Indeed, we’ve never before seen global markets suffer the same kind of impact as that which is devastating them right now.
At some point, we’ll be past the worst of the COVID-19 coronavirus pandemic and infections will begin to decline. When that day comes, there will be no shortage of “lessons” assembled by the mainstream media about how we can better negotiate a similar crisis in the future.
One lesson we can discuss straight away is the importance of preparing one’s portfolio to better withstand the sudden fury that can overwhelm markets in a short period. In fact, as this crisis continues to unfold, there remains an opportunity to apply the benefits of this lesson right now.
Markets Now “at the Mercy of the Virus”
The current outbreak gained critical mass in no time. Once that happened, it seems there has been a new and ominous development each day regarding the coronavirus’s effect on both the worldwide human condition and global economy.
To say that markets have been spooked is the understatement of the year. Right before our eyes, the world’s most famous indexes have disintegrated at a startling pace.
Three weeks ago, the S&P 500 index had the dubious distinction of falling into correction territory at the fastest rate in history. The benchmark needed just six sessions to fall 10% from its recent high. As it turns out, however, that was just the beginning of the remarkable volatility.
On Monday, March 9, the Dow Jones Industrial Index suffered its worst day since the 2008 financial crisis. Just two days later, the Dow entered a bear market – 20% down from its high – at the fastest rate since the Great Depression. The next day, the S&P 500 and Nasdaq Composite joined the Dow in bear market territory.
As for “fixes” to the global economy – including financial markets – there don’t appear to be any forthcoming. It’s not for lack of trying. On Sunday, March 15, the Federal Reserve effectively lowered interest rates to zero by dropping the fed funds target range from 1% to 1.25% down to 0% to 0.25%. Markets were less than inspired, to say the least. The following day, the Dow one-upped its miserable performance the previous Monday, sinking another 12.9% for its biggest one-day drop since the 1987 crash.
Experts say that order cannot be restored to the economy and markets until it’s clear the outbreak has been contained. Commenting on Fed efforts to stabilize the current environment, Quincy Krosby, chief market strategist at Prudential Financial, noted, “It’s going to be positive, but the market is at the mercy of the virus and at the mercy of whether the containment policies work.”
Warren Buffett on Financial Markets: “Anything Can Happen Tomorrow”
The current volatility is a surprise to many market-watchers, but Warren Buffett is apparently not among them. It’s no secret the Oracle of Omaha is a big fan of risk assets. Nevertheless, that affinity hasn’t blinded him to their potential for sharp, rapid decline.
Buffett said as much in his recent annual letter to Berkshire Hathaway shareholders:
“Anything can happen to stock prices tomorrow. Occasionally, there will be major drops in the market, perhaps of 50% magnitude or even greater.”
It’s a valuable observation for retirement savers. Buffett is one of the world’s biggest advocates of the beneficial power and potential of financial markets. If he can so matter-of-factly acknowledge their inherent capacity to collapse with practically no warning, the rest of us would be well-advised to respect that possibility, as well.
We are right now living the idea that “anything can happen tomorrow” to markets. It took just a month for the longest bull market in history to become entirely undone. The great fall was triggered by the sudden onset of a crisis event that was largely unforeseen. The lesson here is to make certain your portfolio is configured at all times to withstand the carnage that can so quickly envelop financial markets. One excellent way to do that is to make sure you’ve included genuine safe haven assets, such as physical gold, among your holdings.
As the tremendous volatility has roiled financial markets, all assets have been subject to the madness to some degree. In the short term, that will happen. But since the beginning of the year, when news of the outbreak first hit, gold has remained relatively stable. Moreover, now that the Federal Reserve has effectively lowered interest rates to zero and a wealth of other government and central bank “helps” are on the way, gold is expected to strengthen through the foreseeable future. Many analysts are lining up now to say they believe drastic dollar-weakening monetary policies designed to shore up the global economy will spark gold to a new all-time high sometime in 2020.
We’ve never lived through anything such as the pandemic that’s threatening both the physical and economic health of the entire world right now. The most important thing you can do is follow the advice of medical professionals designed to help keep you, your loved ones and your local community healthy and safe. Something else you can do is to take simple steps that will help secure the savings you’ve worked so hard to accumulate – steps that could include putting the demonstrated safe-haven power of physical gold on your side.