I understand some people are anxious about their investments now, so I think it’s also important to help anxious clients understand the difference between “event-driven,” “cyclical” or “structural” recessions.
What we’re in now is referred to as an event-driven recession due to the pandemic. Looking at what’s happened in the past, other event-driven recessions have lasted on average approximately eight months and the average time for recovery is 13 months after the viral outbreak is stopped or contained. It’s important to let clients know this so they don’t panic. This will not likely be similar to the 2008 recession, which was largely caused by a structural collapse in the banking system in the U.S. and elsewhere. A structural recession leads to a deeper drop in market values in terms of the stock market, and it also takes longer to work its way through the economy — 97 months on average.
With previous viral outbreaks (e.g., SARS, avian flu, MERS, Ebola, Zika) we have seen an average rise in the Standard & Poor’s 500 Index of 23% 12 months after viral containment, and 35.4% within 24 months after containment.
In times of crisis, it’s important to connect with clients and help them see the big picture of what’s going on in their lives and in the world.
R.J. Kelly is a Court of the Table qualifier from San Diego, California. He’s been an MDRT member since 1979 and he’s the founder and chief visionary officer of Wealth Legacy Group.