Roller Coaster Markets

A day like yesterday (3/9/2020) in the market is a firm reminder that you don't lose your stomach when you're ticking up the first hill of a roller coaster. It's on the way down, free falling, almost out of control when the screams and cries can be heard. You know you're safe - every statistic in the world confirms this, but the overwhelming feeling is that you are out of control and the worst is likely. Eventually you hit the trough and the feeling subsides until the next banked curve or hill. For the inexperienced investor, or those who have had poor past experiences, I would imagine a day like Monday could feel a lot like a roller coaster in the stock market. Good news is, what goes down, must come up.

After a precipitous fall following the opening bell yesterday, stock trading was halted by the "breakers" which trigger after an initial 7% drop. There are three such fail-safes in place: 7%, 13% and 20% to create interrupts in the trading day and allow both algorithms and humans to reset. Here are a few things to keep in perspective as we head into the remainder of the trading week.

1. One day shouldn't change your investment strategy. Unless the capitalistic, global economy of the present goes out the door, its unlikely that this single correction and covid-19 scare will change how money, investing and the economy function going forward. Don't overreact to something that will probably not change the fundamental truths investing is based on.
2. Nobody called this correction. This correction has been predicted hundreds if not thousands of times by the likes of those who are always pontificating that the next correction is upon us. Some people have spent the better part of the past ten years predicting the bear market that was about to begin, or was just around the corner. That doesn't take any talent. Even if there was a reasonable person who had kept quiet through January and February and suddenly started waving the red flag just this month, they will not know when the bottom hits or the end is in sight. A perfectly timed call of an economic or market correction that can't by repeated and systematized is as good as no call at all - unless this was your last year as an investor.
3. Don't abandon risk-off assets. Cash, gold, fixed income and other risk-control assets have done their job since the market's peak. As improbable as forward looking returns for bonds were at the end of the prior year, they have served portfolios well during the recent panic. This portion of your investments are there for one express purpose - defense. They aren't added for appreciation or growth, it is all about controlling the risk side of your portfolio assigned to stocks or other assets. They are the dry powder that will be available for re-positioning once the blood bath for stocks is through. Re-balancing after a dramatic event like the correction we find ourselves in can dramatically lower the impact of volatility on your portfolio over the long run - and we are still all long-term investors, let's remember that.
4. Moving all to cash right now to avoid the rest of this decline is a bad strategy. Even if you got out before Monday's 7% fall in equities due to your own spidey-sense or your advisor's, there is still the question of when and how to get back in. Ironically, March 9, 209 was the beginning of this 11 year rally stocks and the economy have been on. There are people who sat out the first years for fear of re-entering the market too soon and others who stayed out all together. History is a great teacher of the trajectory of recoveries and let us not forget that by the first of June 2009, after the recovery had started, the stock market was up just over 40% from its low in March. I spoke to investors, read articles and listened to advisors who told stories years later of clients still in cash for fear of the shock of 2008-2009 - that is real PTSD.
5. Most investors who move in and out of the market, or shift positions frequently, fail to realize the returns of the assets they were holding by multiples. If you miss the 25 best days in the market, you have essentially wiped out the returns altogether. The real (crystal-ball) problem is that the best days are often preceded, or followed by the worst performing days in the stock market. You can't avoid the up and down of the market, so it's important to remember the long-term trend that more than 80% of the time, the stock market is going up and to the right.
6. You can make some decisions right now and take action. I always feel good when I do something amidst a tumultuous market change. Now might be a great time to start increasing your savings rates into retirement plans and taxable accounts. You may want to consider contributions to college funds or even a SEP IRA if you have access to one. The stock market is the only asset that goes on sale and buyers turn tale and run. You're getting a 15-20% discount on the assets you add to and decades from now when you take it out, what prices do a month or six months from now won't have a significant impact on your overall portfolio outcome.
7. Stay in control of the one thing you can - your reaction. I tell at least one of my four kids this almost every day, "you can't control what happens to you, but you can control how you respond." Don't do something you're likely to regret, like a panic sell. Do yourself (and your spouse if you have one) a favor - turn off the financial news networks for the next few days or weeks, trust the plan you have in place, and focus on the things you can control. The roller coaster is gong to keep moving, so throw your hands up, smile and enjoy the ride - with a good plan you'll still reach your destination safely.

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