The topsy-turvy moves of the stock market in the last weeks have caused many investors to panic and sell their holdings.
But, while we’re all frightened by the spread of the coronavirus, is going to cash in your portfolio the right thing to do?
Coronavirus Spooks Investors, Causes Flight to Cash
The key thing to remember when you’re an investor is your retirement horizon: How long will it be before you need the money in your retirement account?
If the answer is a decade or more, the crazy ups and downs of the market in the short-term have no bearing on your long-term plan.
Here’s the bottom line: Money expert Clark Howard expects severe economic disruption for at least eight to 12 weeks owing to the coronavirus, and possibly longer.
But the silver lining here is that we came into this crisis from a position of strength.
“The underlying economy was good going into this,” Clark says. “We had some economic slowing, but we still had a very strong economy with very low unemployment. So when we come out of this, we will have a recovery. Not as fast as this decline is going to be, but we’re going to have a recovery.”
Clark has said he’s not making any changes to how he invests in light of the coronavirus scare.
Our team also spoke with certified financial planner Wes Moss and he put the market roller-coaster ride of recent weeks into context.
“We have had a very placid few years in markets without significant or scary pullbacks. So let’s do a quick reality check on pullbacks. Yes, they are common. In fact, in 20 of the last 40 calendar years (that’s 50% of the time) the S&P 500 saw a double-digit pullback within the year,” Moss pointed out.
“In every year, there was a market pullback and on average the market experienced a 13% decline. In the years when the S&P did experience a double-digit decline, 12 of those 20 times — or 60% of the time — the market ended the year with a positive return.”
So until things recover, Moss recommends limiting risk by keeping your portfolio well-diversified.
Clark echoes Moss’ sentiment — further aiming to be a voice of calm and reason at a time when investors are in a panic.
“We don’t know how much the stock market is going to decline through this process,” he says. “The stock market has had a long, long, long upward trend. Stocks were, in a polite way, fully valued — probably overvalued — leading into this era of uncertainty.”
“Investors hate uncertainty, and until the dust clears from coronavirus, the market is going to be bumpy. As long as you are invested for the right reasons — saving for your long term — and your money is diversified as it should be appropriate to your age, you just ignore the headlines and hang in there.”
“Markets, even after a painful decline, eventually recover. The younger you are, the more a decline in the market ultimately makes you money down the road because you’re buying everything on sale for what — over your working lifetime — will probably recover many times over.”