03/18/2020
Advice for Turbulent Times in the Stock Market
By Dan Taylor, President Taylor Wealth Management
1. First, take a deep breath. History has shown that the market has recovered from these pullbacks. According to CNBC, a correction (a 10% drop) has recovered on average in about 121 days. A bear market (more than 20%) takes about an average of 22 months to recover.
2. Second, understand that these happen more often than we like to remember. According to statistics from the S&P and Capital Group, we average a 10% or more drop about once a year, a 15% drop about once every four years, and a 20% or more drop about once every 6 years.
3. Third, this is not our first time with a pandemic that the market has had to face. Since 2003, we have faced 7 pandemics. You will recall some of these names: SARS, Avian flu, Swine flu (H1N1), MERS Coronavirus, Ebola, Zika, and finally novel coronavirus. In addition to the pandemics, we have almost a dozen other events that caused a correction in this same time period.
4. The market doesn’t like uncertainty. Many corrections have been triggered by events unforeseen by experts. The biggest example of this was 9/11. As little as two months ago, many analysts were touting how the economy was on strong footing and could continue a bull run. Of course, no one saw how the how the corona virus would affect the world and negatively impact GDP.
5. As a result of number 4 above, it is impossible to time the market. Think about it, if one could time the market, would they have to work for a living? Occasionally people get lucky, but not often!
6. Do several important steps with your portfolio. First, set your time horizon. Second, understand your risk tolerance. Third, set the asset allocation. Finally, trust the process. Rinse and repeat! Periodically review these important determinants.
7. Most portfolios are diversified with stocks and bonds. Stocks traditionally give you growth. Bonds provide an income stream. That is a broad generalization. What is more important is that a diversified portfolio has securities that move in opposite directions or at least not at the same volatility. So far, bonds have helped to dampen the volatility in this corona virus event.
8. Take time away from the news and social media. Not only does this help to deal with market volatility but helps to cope with the cause……the corona virus. The media uses words that heighten our anxiety, “the market plummets”, or “stock market is in freefall”. Of course, this attracts the reader to read the article but causes much angst.
9. When on a boat, do you look at the water in front of the bow or the horizon? Looking at the daily values also can create anxiety, focus on the horizon, the long-term strategy.
10. Think in terms of time versus money down. For example, the S&P 500 and NASDAQ are both about where they were 26 months ago. The Dow is where it was in 2017.
11. As painful as it is right now, it helps to think in terms of the market corrections being a healthy thing. This is very difficult to imagine when you look at your IRA or 401k statement, believe me, it hurts for me to think that way at times. However, it is an opportunity to buy blue chip companies at a discount. At the time of this writing, you would be buying stocks at a 25% discount. Think of it this way, when you shop for a new suit or dress, do you get excited about paying full price or buying it at a discount. Also envision the market as a pressure cooker; periodically you have to release some of the pressure or steam off the pot. This is true with the market.
12. Take the advice of Warren Buffett. “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”
