After the longest bull market run in history, stocks came crashing back down to Earth in March when news of the COVID-19 pandemic shook investor confidence. Major stock indices went tumbling as businesses closed across the country and millions of workers became unemployed over a span of weeks. While stocks have slightly rebounded from the steep declines we saw in March, it seems we’re still not out of the woods yet. White House economists predicted a “V-shaped” recovery (a quick downturn followed by a speedy recovery) back in May, but one month later, it’s looking less and less likely that prediction will become a reality. What kind of recovery can we expect, and what does it mean for those in or near retirement?
A Bumpy Ride for Spring 2020
Once the initial COVID-19 crash bottomed out, stocks began a steady climb that made investors feel more optimistic. While the Spring of 2020 wasn’t without its ups and down, stocks generally showed an upward trend. By early June, the Dow Jones and S&P 500 were even within striking distance of positive territory for the year, with the NASDAQ actually gaining ground since its previous highs in March. As businesses began to reopen, many economists were feeling optimistic about the prospect of a V-shaped recovery. Those hopes were dashed on June 11th, when news about an increase in new COVID-19 cases hit the media, spurring a one-day drop of 1,800 points for the Dow Jones. In addition, the Federal Reserve’s announcement that they would be keeping interest rates at historic lows until at least 2022 made investors feel like our nation’s central bank was anticipating trouble ahead. What once looked like the start of a V-shaped recovery quickly leveled off, and presently seems to be trending downward again.
A W-Shaped Recovery
It’s not all bad news; just because we’re not experiencing a V-shaped recovery doesn’t mean that the economy will never recover. It just means that the road to recovery may not be as simple as a sharp downturn followed by an immediate rebound. At this point, it looks like our recovery may be more W-shaped, with one or more downward movement before it picks up speed.
Retirement in the W-Shaped Economy
While some people may be in a position to weather the storm of a W-shaped recovery, those who are currently retired or who will be retiring soon may not be so lucky. Retirement Phase Expert Phil Cannella believes COVID-19’s second wave could devastate retirement accounts just like the stock market crash of 2008.
“It will take years to fully recover from the second wave of the virus, and a return to the old normal days may never happen,” says Cannella.
Because so many retirement investments are based in risky securities, their value is subject to the ups and downs of the stock market. If you’re currently retired or you plan to retire in the next year or two, a second stock market crash could wipe out your nest egg entirely. Fortunately, there are investments available that exist outside the securities industry. These revolutionary financial vehicles can provide competitive growth during economic upturns while preventing your principal from being lost during a crash. If you would like to know more about retirement investments that can protect your retirement savings, tune in to the Crash Proof Retirement Show or get in touch with Crash Proof Retirement today to speak with a Retirement Phase Advisor.