I can tell you from first-hand experience that events like those that unfold before our eyes always look much worse when you’re caught in the middle of it all.
That’s especially true when you have the means that provide 24/7 wall-to-wall coverage and saturation. As investors, this kind of constant media attention can leave you feeling like things are spinning out of control.
At times like these, of course, you will be concerned about the impact that the market sell-off will have on your retirement accounts and net worth.
But I have seen that after each of these “system” shocks, both the economy and the stock market have finally recovered.
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The 1987 accident is a good example. On Black Monday, the October 19 crash cut more than 22% of the Dow’s value in a matter of hours.
After that crash, the federal government instituted reforms to prevent this type of panic. Most notable is what we saw on Monday for the third time in six sessions.
I’m talking about the circuit breaker that stops all operations for 15 minutes if the S&P 500 drops more than seven percent. The idea is to allow investors a moment to catch their breath and stop the rush of sell orders.
If this had been in place at the time, Black Monday could not have played as it did, neither in its rigor nor in its speed.
Here’s the thing. Once the panic is over and investors feel safe again, they will return to the market.
And that can happen very fast. It took just fifteen months after Black Monday for the markets to return to normal.
After that, the stock market resumed its upward march on the strength of the United States economy, which has proven time and time again that it is incredibly resilient.
Remember the 2008 financial crisis? On September 29, of that year, the Dow lost almost 778 points in one session.
I vividly remember that panicked investors began to download shares en masse. Driven by fear, many suffered extreme losses to get out.
But remember, fundamental problems in the economy caused both events.
In the late 1980s, it was the impact of leveraged purchases that swept the country and weakened both corporate and bank balance sheets.
And the 2008 collapse came as a result of subprime lending practices. Back then, it was almost as if someone could buy a home that they couldn’t afford without a down payment.
However, not even the 2008 subprime craze could keep investors down.
The market has hit new highs many times since then. And while it could be argued that the stock market was overbought, let’s be clear that what is happening right now is not based on a weakened economy or financial system. It is an external factor …
Waiting for the Storm
The current mass sale is mainly because government officials around the world are closing or restricting restaurants, events, and travel due to the impact of the coronavirus.
Here in the United States, health officials and the media warn that the worst is yet to come. They may be right. However, life will continue afterward. The stock market will rise again.
With that in mind, here are ten things to think about right now:
- Stay calm and keep coronavirus and economic news in their right contexts.
- Avoid panic selling, especially if you will have large losses.
- But make sure you have your bumpers to lessen the impact on your wallet.
- If the market triggers your stops, take it easy, and move on. This is not the time to guess.
- Remember that your retirement accounts are long term, and you benefit from adding to your positions while the market is idle. This is the ideal time to average the cost in dollars.
- Prepare a list of stocks that you would like to purchase when events are most in your favor.
- If they are big tech stocks, you want to start buying soon, come in with small amounts and build positions gradually.
- On the other hand, don’t get greedy right now and jump on stocks just because they suddenly seem “cheap.”
- If you make a profit from a taxable account, be sure to reserve them. You don’t want to end up with the IRS next year.
- Pay off the debts you can. This is an excellent time to be as liquid as possible.
Lastly, count your blessings and try to help people. Turn off the news and take this time off to build stronger relationships with your family and friends.