May 12, 2020

A Lesson In Time

Fear, uncertainty, doubt - these emotions are nothing new to the world of investing. In fact, they seem to reappear on a fairly consistent basis. Covid-19 has brought them back with a vengeance, but wise investors know how to stay the course, keep their emotions governed, and take advantage of new opportunities.

History Refresher

Throughout stock market history, market bubbles and crashes have been regular occurrences, either leading or lagging major events.

One of the best buying opportunities in American stock market history came during one of the greatest economic calamities.  The stock market slump that preceded the Great Depression lasted less than three years (October 1929 until July 1932). The economic crisis would not last however, with World War II on the horizon, and the country pulling out of its doldrums.

Most recently in history was the financial crisis of 2008, which was a difficult year and a half, but was followed by more than a decade of phenomenal stock market gains.

Since 1957, there have been a total of 12 bear markets. Every single time, markets eventually recovered, usually in less than 24 months.

Pandemics themselves don’t last, either. Polio, Zika, Ebola, the Spanish flu, the Black Death of Europe—all of these were eventually conquered, and usually quite quickly.

Current Events & Investing Today

A study has predicted there may be a resurgence of coronavirus later in 2020 (Covid-19 itself is a sister strain of the SARS virus of 2003). If so, market volatility may continue. Eventually, this outbreak will run its course. Between now and then, your goal is to make prudent investment decisions.

Panic selling is one of two possible reactions in a time like this. The fight-or-flight animal instinctive response, evolved over millions of years, exists in all of us and has revealed that the human investment tendency is that of flight – selling in a time of panic. Oftentimes when people do, it’s near or at the bottom, which is the exact opposite of what investors should do.

The wise investor will control his emotions, focus on the long term, and look for potential buying opportunities.  April 2020 has already demonstrated the market’s ability to bounce back from significant downturns.

Future Guidance

1. Take a second look at your current financial plan and/or your Investment Policy Statement. Try to stick to these original objectives if you can and reexamine your time horizon, life goals, and risk tolerance. Although some of your circumstances may have changed, your mission throughout this crisis is be a good steward of your long-term plan.

2. A way to neutralize short-term volatility in the broader equity market is to dollar-cost average, which is the practice of dividing an investment of an equity up into multiple smaller investments of equal amounts, spaced out over regular intervals.

3. During periods of reemerging fear and doubt, you may want to seek out the assistance of a financial advisor to address your concerns. With professional assistance, you’ll have the confidence you need to come out the other side intact.  

For more information on how to manage your investments with a sound psychological framework during the coronavirus epidemic, reach out to anyone on the Horizon team and start a conversation.

Additional Resources:

Investors cannot directly invest in indices. Past performance does not guarantee future results.

Investments in securities do not offer a fixed rate of return. Principal, yield and/or share price will fluctuate with changes in market conditions and, when sold or redeemed, you may receive more or less that originally invested. No system or financial planning strategy can guarantee future results.