With stay-at-home requirements in effect throughout much of the world, some economists say a recession is inevitable. Skittish investors may be tempted to go from stocks to cash because of perceptions of recessions and the effect it has on the economy. If our intuition tells us that things will get worse before they get better, is this the right time to make the switch?
While each recession plays out differently, data from the past century’s 15 recessions suggest that most of the time, investors came out better by sticking with their allocation to stocks. As the accompanying article demonstrates, investment returns were positive in 11 of the 15 recessions just two years after the onset of the recession. Moreover, the average return of stocks over those two years was 7.8%.
It’s far too early to assess how quickly the economy will regain its footing. Still, history suggests that investors who held a steady course, and ignored their intuition, came out better in the long run.
Robert Ades, CFA