Not only do we have to worry about the first pandemic of our lifetimes, but we’re also a lot poorer now. Here’s what (not) to do about it.
In case you missed it, it’s been a terrible, horrible, no good, very bad couple of weeks for the stock market. Like epically bad. Like shades of the Global Financial Crisis in 2008 bad. The double whammy of the coronavirus and a price war an oil between Saudi Arabia and Russia have slain the longest bull market in US history and we are officially in bear territory. On March 12, the Dow lost over 10% and notched its worst day since something most of us don’t remember called “Black Monday” in 1987. And the S&P 500, which is a vastly superior measure of the stock market as a whole for reasons I won’t bore you with, has lost more than 25% since mid-February when coronavirus panic began in earnest. That means if you’re primarily invested in stocks, you’ve potentially lost upwards of a quarter of your net worth in a matter of weeks. Say it ain’t so!
But before you completely freak out (at least about this particular issue), it’s important to keep a couple things in perspective. Prior to this meltdown stocks were at all-time highs. Without even necessarily realizing it, you probably enjoyed a double digit return every year for over 10 years if you had a relatively well diversified stock portfolio. That is insane! So, it may be helpful to think of this nasty stretch as just giving back a bit of that back. Recent returns, we hardly knew ye. Secondly, the party was likely going to end at some point anyhow given that the current expansion has been going on for over a decade. Granted, things have fallen apart in dramatic fashion as of late, but those of us that took Econ 101 are familiar with the economic cycle know that it is exactly that – a cycle. And regardless of what causes the cycle to turn, a stock market correction is a standard accompaniment. Lastly, take solace in the fact that the broad stock market historically moves up and to the right. That is, it almost always goes up if you wait long enough. Your 401k or IRA may have just taken a bit hit – you ARE saving for retirement, aren’t you? – but not to fear, your money will likely have more than enough time to recoup these losses and then some. By the time you’re taking required distributions and sipping mojitos in Arizona and kvetching about “kids these days,” you won’t even remember what markets did in 2020.
“But it still pains me to lose money,” you say. But of course. Surely there must be something to do about this! To at least stem the flow of blood? Personally, I recommend doing nothing. Don’t look at your brokerage accounts every day and internalize just how much you’ve lost. It’s not good for the psyche in these already chaotic times. It could also lead to some rash decisions, which is a smooth segue to my next point. Don’t sell unless you need the money or perhaps if your positions are underwater from when you bought them (then you can offset some taxes next year through a tactic called tax lost harvesting). Your stocks will likely recover eventually as previously discussed, and you’ll want to be fully invested when the markets turn so you can ride them all the way back up again. Don’t move into bonds – at least I wouldn’t. Bonds have had a great run, literally since the early 1980’s, and have performed well in the recent turmoil. But yields (ie. interest rates) are at all-time lows and will need to keep going lower in order to generate a decent return. They very well might in the short-term, but there’s seemingly limited upside. But perhaps we should buy while blood is in the streets! Hmmm, maybe, but IMO this is not the bottom and things are going to get worse before they get better. I wholeheartedly suggest that you just take a deep breath and resist the urge to try and fix all of this.
In summary, keep your eye on the markets but don’t get too bent out of shape about the goings on. Remember, there are a lot of things to be thankful for besides money. Hug your kids. Check in with your family and friends. Rejoice if you don't work in financial services like yours truly. Watch or re-watch "Love is Blind." Make sure you have a 1-month supply of pasta and wine. Hunker down. This too shall pass.