In my blog last week Unemployment Goes Up and So Do Stocks, I talked about how stocks have kept going up despite grim unemployment numbers. Today, I wish to share 4 ideas that I have taken from several other financial sources that may explain why this may be happening and what you should do about it.
Most Job losses are temporary
While the Fed (US Federal Reserve) survey showed unemployment increased tenfold in April to 18.1 million in April, “permanent” job loses increased only by 544,000 to 2.0 million." The latter is the more important number and is much less scary.
The market and stock prices are forward-looking
Stock markets are not so much concerned about what is going on now in the economy but what it looks like in nine months or a year from now.
Very Low Interest Rates
Lower interest rates help stimulate the economy. Everything else being equal, (which it rarely is) this can help support stock prices.
Massive government action
Massive action by federal governments around the world are flooding markets with cash. This helps support both markets and adds to investor confidence.
No one knows nor do we have any control about how the Covid-19 virus situation will play out, how long it will take for the unemployed to get back to work or how long it will take to develop an effective vaccine.
We do, however, have complete control over how we react to all of this. Those with a well thought out wealth program that includes their short, medium and long term essential financial goals and have implemented simple strategies to get to those goals should still be in good shape. Their plan will have built in provisions for surprises like Covid-19 (we call them Critical Financial Events) and include a regular review process to adjust their program to change things as needed.
The good news is that that using simple proven strategies, like dollar-cost-averaging, work beautifully and require little effort. Being successful does not need to be complicated. Just look at the illustration below. It shows how markets have historically risen for longer periods and greater amounts than when they fall.
Source: Mackenzie Financial
The odds are incredibly in your favour. Investors who don’t try to get rich quick and stay away from overly complicated strategies and products will have a hard time not doing well.
You can't believe how hard it is for people to be simple, how much they fear being simple. They worry that if they are simple, people will think they are simpleminded. In reality, of course, it's just the reverse. Clear tough-minded people are the most simple.
- Former General Electric CEO Jack Welch
Hope you enjoy and stay safe.