Most of us, along with our financial advisors, built our investment strategies around what we’ve lived through. After all, experience is a powerful teacher. But what if the past 30 to 40 years of investing—falling interest rates, mild inflation, and fast recoveries from downturns—aren’t the best predictors of what’s ahead?
That’s the concern raised by Phillip Toews, CEO of Toews Asset Management, who warns that many investors suffer from what he calls “corona bias.” It’s the tendency to focus only on what’s fresh in our memory, while forgetting that markets have a much longer—and bumpier—history. (Read recent article here)
Think back to early 2020. Very few saw a global pandemic coming, despite the Spanish Flu (1918-1920) being part of history books. In the same way, we may be overlooking the potential for major shifts in markets, inflation, or interest rates simply because we haven’t experienced them in recent memory.
History Has Lessons We Can’t Ignore
Consider bonds—often thought of as the safe, steady part of a portfolio. But from 1945 to 1981, bond portfolios actually lost 21% in real (inflation-adjusted) terms. That’s 36 years of declining purchasing power. And the stock market? After the crash of 1929, it took over 16 years for the market to fully recover. These are the kinds of conditions today’s retirees have likely never had to navigate—but that doesn’t mean they can’t return.
And let’s not forget today’s risks:
- Elevated inflation still lingers.
- Sovereign debt levels are at all-time highs.
- Stock valuations remain stretched by historical standards.
Sound familiar? These conditions have echoes of past economic storms—and they can shift quickly.
How to Prepare Your Portfolio for a Different Future
If the next 10–20 years look different than the last 40, how do we protect what we’ve worked so hard to build? Working with your financial advisor or some financial professional, Toews recommends three smart strategies:
1. Stress Test Your Portfolio
Don’t just back-test your investments using the last 10 years. Look at how your portfolio might have performed during decades like the 1970s or the Great Depression. Would you still be comfortable?
2. Use Downside Protection
Think hedging, cash buffers, or trend-following strategies. These approaches aim to limit losses during big downturns, not just ride the highs.
3. Plan for Emotions
One of the biggest risks isn’t just the market—it’s how we react to it. Create a game plan now, while you’re calm, for how you’ll respond when things get bumpy. This could be the difference between staying the course and locking in losses during a panic.
Final Thoughts
If you’re nearing or in retirement, the stakes are even higher. You may not have the luxury of “waiting it out” for another decade. The biggest investment mistake isn’t a bad year in the market—it’s being caught off guard by a market that doesn’t look like the one you planned for.
Now’s the time to ask:
Is your portfolio built for the market you remember—or the one that’s actually coming?
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Disclaimer: The information in this blog post is for educational and informational purposes only and should NOT be construed as financial or investment advice. Investing carries risks, including the loss of principal. Always conduct your own research and consider consulting with a qualified financial professional before making any investment decisions.