The Dow officially entered a bear market (defined by a drop of 20% or more), and it looks as though the S&P and other indexes are not far behind. As the coronavirus and its related fears continue to spread, and oil prices plummet due to warring OPEC nations, the stock market has been in a tailspin the past few weeks. In fact, this has been the second quickest march to bear market territory on record, second only to the Great Depression. Who would have thought that 2020 would have been in company like that!?
There are many great commentaries out by leading industry experts who we can lean into for insight in times like these. Fidelity has a great summary of what previous times in bear markets have looked like and how long they have lasted.
BlackRock has some in depth charts of various risk factors and outlooks for global economies in light of the coronavirus.
Now that we’re here, what’s the best course of action for survival? I think the first thing to keep in mind is that the markets have always recovered, and this time will be no different. Some bear markets have been much quicker than others (some as short as 3 months), but on average they have lasted 22 months according to Fidelity’s report (meaning the time it took to recover all losses). Amazingly, even the Great Recession of 2007-2009 was back to even within 27 months.
We’ve tried to do a great job of planning on the front end and not having our clients over-exposed to the markets. What I mean by this is that we continue to look at your overall personal financial plan and forecast what amounts of withdrawals you are anticipating over the next few years. We aim to have all of that money in conservative investments like bonds (which are up around 3.8% YTD), so that we don’t have to hit a panic button when these times come.
If you’re retired and are withdrawing funds from your investments, then we will aim to utilize your conservative investments to fund account withdrawals, allowing your stocks plenty of time to recover. This helps us avoid the need to sell anything at a loss.
If you’re not retired yet, then this can be a great time to be adding to your retirement funds. According to Fidelity’s report, the average 1-year return after the bottom of a bear market (we likely aren’t there yet, but we’ll never know when that was until hindsight) is 47%, something you certainly don’t want to miss out on.
My counsel for each of you is to avoid panicking. This is for two reasons. The first is financial; Warren Buffet is quoted as saying that “the stock market is a device for transferring money from the impatient to the patient.” Having gone through 2007-2009 with many of you, the only ones that came out any worse for the wear were folks that had a knee-jerk reaction at or near the bottom. It could likely be that we aren’t at the bottom, but trying to time that is a very difficult feat that produces a high amount of anxiety along the way. So if you get the feeling that “I just can’t take this any more”, fight that feeling for all it’s worth as patience will pay off in the end.
We have you invested in a way that we’re not dependent upon “beating the markets”. The markets work for us very well long-term, and they will continue to do so. Bear markets are part of the investor experience and we can’t take the good without the bad.
The other reason for keeping a level head is spiritual and emotional. When we go into panic mode, it’s just not healthy for us in any way. It makes us lose sleep. It makes us irritable and less patient with people. We tend to get irrational and obsessive (have you tried buying toilet paper or hand sanitizer!?). And it takes our eyes off of the God who created us, sustains our health, and provides for all of our daily needs.
There are certain risks you can control. You can control your risk to coronavirus by washing your hands a lot and avoiding very large gatherings, planes, etc. And you can control your risk to the stock market by not having funds you’re depending on in the next few years exposed to them.
You can’t eliminate these risks altogether. You can’t control the spread of coronavirus nor can you control the movements of the stock market. And that’s okay; life is full of risks and your job isn’t to eliminate every risk.
Thankfully, God is in complete control here. He is not wringing his hands, and we don’t need to either. We’re monitoring things closely and utilizing some investments that either have some active management that can make some tactical investment adjustments to lower stock exposure. We also utilize some investments focused on minimum volatility and companies with quality balance sheets. We don’t know exactly where this is heading, but are trying to stay smart and keep a level head.
If you’d like to discuss your situation or any potential adjustments, please reach out to me anytime. Thanks for entrusting us to help get you through crises like this.BACK TO NEWS