Hang in There, Things Will Get Better

Hang in There, Things Will Get Better

| Paul Fain

Several weeks ago, I (virtually) attended the Vanguard Advisor Symposium.

Sidebar: One of the unexpected silver linings to the COVID pandemic has been access to great meetings without the hassle and expense of air travel and hotels.

The event kicked off with a presentation by Joe Davis, Vanguard’s Global Chief Economist. According to Davis, this is the first time that America’s economic performance is being determined by the trajectory of a health outcome (overcoming the pandemic).

He doesn’t expect the U.S. to return to pre-COVID economic growth until late 2021. Davis doesn’t expect rising interest rates until 2023; and he expects rates of return for stocks and bonds to be lower than historical averages during the next five to ten years.

His advice for your financial plan? Save more or move out on the investment risk/return spectrum, or do a combination of both. He asks, “Which is the greater comfort?” (Saving more or taking more market risk seeking higher returns).

The next speaker was Benjamin Barasky, Vanguard’s Senior Congressional Affairs Strategist. He believes that election results matter, i.e., regulation of financial markets, changes in policy, etc.; but, he added, there is no evidence that election years change market performance. The U.S. stock market has averaged 8.9% return in election years vs. 8.1% average in non-election years.

Barasky noted that investors will always say that an election “is different this time,” but this year really is different. It is the first election occurring in the midst of a pandemic. There will be an unprecedented amount of votes-by-mail, and there will be uncertainty of the count. He said that election “day” could become election week or election month. He reminds investors to expect increased volatility: “Markets hate uncertainty!”

Barasky also addressed a grab-bag of voter issues. On the ballooning federal budget deficit, Vanguard advocates for stimulus spending but proposes tying fiscal stimulus to health outcomes, i.e., adjust the spending based on triggers (improving outcomes vs. worsening outcomes).

Regarding the national debt, Barasky said the concern is for increases in spending without increases in revenue. Higher taxes may be inevitable and the government needs to get closer to a balanced budget.

Another concern about stimulus spending is inflation, will we see inflation bounce from current low levels as the economy re-opens? Perhaps technology, particularly the digital economy will keep inflation in check.

Several sessions focused on investing. Nuggets: Watch the trajectory of COVID-19 but stay with your financial plan – long-term investment horizons extend beyond the pandemic. Current market conditions are a poor predictor of future returns. Maintain diversification and discipline in this uncertain world.

Bonds are important for portfolio ballast. Expect a reemergence of China’s performance. Other growth opportunities will reflect changes in education, finance, retail, etc.

Vanguard’s bottom line: Things will get better, problems will get solved.