I’m sure you’ve seen the headlines, but if not, you should know that the global stock markets are dropping as a result of fears about the spread of the coronavirus. The statistics keep changing but planning for events like this should not. Pricing of the stock market is relative to the latest information received. The plethora of information and unknowns at this point are a likely cause for the current stock market drop.
We have no idea how far or fast the disease will spread, and neither do the markets. Due to this uncertainty, many people will want to react. This is not necessarily the best course of action. This is a new issue facing the entire globe, maybe not directly but at least indirectly. This is not a new scenario; we have faced catastrophic events in the past and have had to endure the volatility of our investments. Our clients have gone through a planning process and investment education. This is an example of why we have engaged in these exercises.
What is the best course of action today? The first 3% drop in the U.S. stock markets was completely unexpected, and nobody could predict the second day’s fall.
The options now are:
1. Sell today, and then watch to see how the spread of the coronavirus plays out in the minds of day traders and quick-twitch “investors.” The odds are that the markets will recover before the end of the epidemic, so you’ll eventually have to buy back at a higher price than you sold—this is a decision you will likely regret.
2. Wait until there is confirmation that we are, indeed, in a real bear market, sell at or near the bottom, and then see the markets rise past where you sold—again, a decision you may regret.
3. Hold tight, ride out the downturn (however long or short it might be) and experience the next rise (whenever it comes) and breathe a sigh of relief that the markets were not down permanently for the first time in human history. You may endure some sweating along the way, but in the end you’ll feel like a winner.
Market timing during times of market stress is psychologically appealing, but in reality it is pretty much impossible to execute. Not knowing when to get out (Yesterday? Two days ago?) and especially not knowing when to get back in, means that your odds of getting it right twice are about 25% or less—and remember that you already missed the first timing decision.
So in the real, rational world, you have two choices: ride it out, or contact our offices if you are feeling real mental distress over these two days of downturns. It could mean that you need a permanent reduction in your portfolio’s risk profile before you make a mistake, out of panic, that could cripple your financial future.