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A Bit Of Certainty During Complete Uncertainty

I know there’s a heavy dose of daily (hourly) excruciating news and you are juggling work, family, social distancing and possible toilet paper shortages. I hope this finds you and your family’s health well. It’s always darkest before the dawn and this too will bottom and pass.

The last month has been extremely difficult for the stock market as we continue to see escalating fallout from the coronavirus. It’s understandable that nerves are frayed. You may have even been tempted to take investment action. That’s very normal since our brains are wired that way and demand action to protect us from financial loss.

While it feels far worse, the S&P 500 is now down 22% for the year to date. Other indexes and stocks are down far more. So far this year, Disney is down 32%, Boeing is down 50% and Carnival Cruises is down 70%. Given the benefit of appropriate stock and bond diversification, many portfolios have likely fared better.

Stocks can be risky but so is avoiding them.

Timing the market can be alluring especially after the last month of market returns. However, market timing, when gone awry, can really set one back on meeting longer-term goals. In fact, if you started investing in 1990 and missed just the one best day of each year in the S&P 500, your portfolio annual return of 7.5% was cut in half 1.

As excruciating as it is to watch a portfolio value slump, it’s important to have an investment plan to follow which was set in much less stressful times. This can soften the impact of this ongoing crises while focusing on the all-important long-term goal with your investments. Remember that perfection is the enemy of good when putting together an investment plan since there’s no such thing as a “perfect” portfolio or plan. The key is a simple strategy that you can follow, not the “perfect” strategy that is difficult to stick to. Following this plan offers more calm during the storm and can provide the best opportunity to achieve portfolio growth for your longer-term goals.

The advantage of being able to invest for the long-term is at its greatest when it’s hardest to do.

The Most Powerful Equalizer

While the storm is very dark now, recoveries can happen very quickly. Time is the most powerful equalizer and markets have always recovered. If you are investing for the longer term and don’t need cash from the portfolio right now, the odds remain in your favor. While volatility should continue in the face of difficult coronavirus news and economic data, please continue to use the most important tool, time, to your advantage. 

David Hone, CFA

1 LPL Financial