Pharaoh's Fury

Elena Peerson, Financial Wellness Strategist

Welcome back to another week of social distancing! Have we run out of ways to entertain ourselves? I video chatted with a childhood friend yesterday who was playing his 6th round of Mancala of the evening. He was in a tournament against himself. He won—well, I suppose he also lost.

This week I want to address the daily fluctuations that we’ve been seeing in the markets. Depending on what time of day, and what day of the week you’ve been tuning in, you may have seen either large market drops or huge market surges. ‘Volatility’ is typically thought of as a 1% swing in the market in either direction in a single day. Recently, it seems 5%+ swings have become the ‘new normal’. We’ve seen huge downwards and upwards surges in a single day, and we’re never certain where the market will be by closing time.

Watching these turbulent markets reminds me of my favorite childhood carnival ride—Pharaoh’s Fury. It was a classic; you’d board the ship, (on one of the ends if you wanted to be a bit more aggressive, and in the middle if you wanted a more moderate experience), and the Egyptian-themed ship would begin to swing back and forth on a pendulum.

At first the ship would build momentum, and then it would swing tremendously high in the air, bringing us to a peak where we’d pause in an adrenaline-induced euphoria, followed by a stomach-jarring downwards swing to the other end. If you stayed in the middle, you’d never feel the full swing, but whether the ship was tipping to one side or the other, you always partook in some of the fun. If you stayed on one of the ends, you had the most fun when your end was on top, the bottom being less thrilling.

Depending on your investment selection in your retirement plan, you’re either going to be in the middle of the ship or on the end. Choose before you get on the boat, because once the swinging begins, you must keep your seatbelt on. The younger folks generally run to the ends, and the more mature prefer the middle. Trying to change your strategy by cashing out and jumping off the ride or trying to move seats while the boat is swinging is discouraged. Keep your arms and legs inside the vehicle until the swinging stops!

Like the ride conductor, mutual funds in your retirement plan don’t allow you to make changes during these intra-day swings. Many people don’t realize this, but mutual funds trade only once per day, at the end of the market session, once markets are closed and all the underlying valuations are accounted for. What is important to your retirement account balance is where the market ends the day. So, on days when you see violent downward swings in the morning, resist the urge to make changes because you may see a rapid upwards swing by the afternoon. That is why when you log into your retirement plan website, you’ll always see the valuation of your account as of yesterday’s close, not as of what is happening at that exact moment in the market.

Mutual funds are, therefore, not meant for trying to ‘time the market’. You buy, and you hold them for the long term. However, there is one thing you can take advantage of during this time.

We have seen a steep drop in the stock market in the past few weeks, but if you’re still regularly putting money into your retirement account, you’re buying more shares at a lower price. Instead of 4 fund shares for $100, now you’re getting 5 shares a contribution. When the ship swings back up, you’ll earn even more money because you’ll own even more shares. That’s why it’s so important to contribute to your account during all times in the market cycle—when the market is going up, we like putting money in because we see the instant gratification of a positive return. When the market is down, we like putting money in because we know while it’s low now, our new money will earn even more when we return to an increasing market again.

Pharaoh’s Fury eventually slows and comes to an end—the market swings end when you unplug from the media. Pick up a Mancala board or order an equally frustrating puzzle. As always, our team at Washington Financial Group is available for your questions and concerns.