As we look back to the beginning of the year — a lifetime ago, it seems — the economy was healthy and growing, the U.S. stock market was rolling along in a bull market approaching 11 years’ duration, unemployment was at levels not seen since the end of World War II, and personal income and veterinary practice revenues were increasing.

Then, the pandemic arrived. The world economy slowed dramatically for 10 to 12 weeks — even longer in some parts of the United States — and unemployment rose to heights not experienced since the Great Depression. Financial markets suffered a heart attack. The S&P 500 peaked on Feb. 19. By March 23, only 33 days later, it had dropped by 34%, the fastest decline of 30% or more since the Great Depression. Now we’re in a recession.

Many people felt blindsided, helpless and unprepared, and they had no idea how to respond. For some, the market gyrations led to anxiety, distress and, worst of all, panic. Many questioned the efficacy of their financial adviser’s advice. Those without a financial adviser wondered whether the decision to do it themselves was wise.

Life Is Cyclical

How can you plan for something that is impossible to predict, like the COVID-19 pandemic? The answer is that such seismic events happen throughout history — for example, Pearl Harbor, the 1973 oil crisis, double-digit inflation, Black Monday and 9/11. We can observe how markets responded then and learn from it.

First, understand that recessions are part of the normal business cycle and should be planned for. The U.S. economy has experienced 16 recessions since 1926, on average one every 7½ years.

Second, stock markets are volatile and always will be. We are now in our 12th bear market since 1926. The prior 11 bear markets lasted 1.3 years on average and delivered an average cumulative loss of 38%. A bear market is not a surprise and must be planned for.

The good news is that the opposite condition, a bull market, lasts on average 6.5 years and is accompanied by an average cumulative gain of 339%.

Prepare vs. Repair

Financial preparedness looks something like this:

• A comprehensive life plan.
• A partnership with a financial adviser and firm that always put the client’s interests ahead of their own. (We strongly suggest working with a certified financial planner who serves as a fiduciary.)
• Regular adviser-initiated meetings that focus on the continuous implementation of the plan and any adjustments due to changes in life circumstances or objectives.
• Preparation for market volatility.
• Annual rebalancing of investment accounts.

The benefits of all this financial preparedness include peace of mind, a feeling of being in control and financial confidence.

Financial preparedness is like preventive medical care. Veterinarians use vaccines, drugs and diagnostics to enhance health and mitigate disease. Comprehensive financial life planning, when done ahead of time and consistently over time, improves outcomes and mitigates poor decisions.

Test Yourself

What was your experience of the past six months? Were you prepared? Here is a simple self-diagnostic tool. Respond to each statement below on a scale of 1 (strongly disagree) to 5 (strongly agree).

• My spouse and I have specific and measurable goals established for the short, mid and long term.
• My financial adviser helps identify and quantify my goals and reviews changing goals at least twice annually.
• I have a well-designed, documented and comprehensive financial plan.
• I completely understand the investment philosophy, methodology and source of the research that underlies investment recommendations.
• I have specific and unique investment allocation strategies in place for short-term goals (0 to 2 years), mid-term goals (3 to 6 years) and long-term goals (7-plus years).
• I know the performance of my investments and how it compares to benchmarks.
• I know the all-in costs associated with my investments, including fund fees, commissions and adviser fees.
• I have a trusting, transparent relationship with a certified financial planner who is a fiduciary and always acts in my best interest.
• My estate plan has been completed or reviewed within the past five years.
• My financial documents are in one place and easily accessible to my advisers and family.

Now total your score. If you scored above 40, congratulations. If not, we encourage you to get a second opinion about your financial health and start to put your financial life in place.

Remember, it is always best to prepare rather than repair.