Oh my. It sure seems like the zombie apocalypse is upon us. The market has officially entered bear territory, ending an unprecedented eleven-year bull market. And if you wonder what bulls and bears have to do with things, remember that a bull’s horns go up, and a bear puts its head down to charge.
So what do you do when the market is down over 20% in a very short period of time? I don’t know your specific situation, but in general, the worst thing you can do is panic and sell. If you purchased a share of stock for $100 in January, and someone offered you $110 in February and you didn’t sell, you still own one share of stock, and you haven’t actually made any money (if you remember our capital gains tax explanation, the $10 is unrealized gains). So now, if someone is offering you $80 for that same share of stock, and you sell, you’ve lost $20 from your original investment. But if you don’t sell, you still have one share of stock. Those shares you own might be worth less if you sold them now, but history shows us that stock prices rebound, and then grow again.
For example, Black Monday in October 1987, the Dow dropped 22% in one day, the largest single-day drop in history. A year later, the market had fully recovered. After the 2008-09 financial crisis, the market was fully recovered in early 2012.
As long as you don’t sell, you still own a piece of each company you’re invested in. If the value drops, you still own the part of the company. Do you think Amazon, Ford, or Proctor & Gamble are going out of business? The value may drop temporarily but the companies are still there, selling products and making money.
I’ll be the first to say things look scary. We’re going to see the impact of these closures over the next few months ripple through the economy. Some small firms may close altogether: think about travel agencies, event management firms. You’ll see companies make less profit in the first six months of the year. For example, the company that sells paper products to stadiums, the trucking companies that deliver cargo from overseas, hotels. But once the virus is under control, those same companies will be selling products again.
I’m concerned about the effect on workers without a safety net. If you don’t have paid sick leave, or the ability to telework, or low-cost childcare, what do you do when your office shuts down for 2 weeks, or your kids’ school shuts down? If you’re fortunate enough to have your head above water now, I will recommend three things: One, build your emergency savings. Think six months of living expenses. Two, if you have the ready cash, now is a great time to buy into the market. Everything is on sale. Three, talk with your financial advisor. Make sure your plan is built to withstand these downturns. This isn’t the first and it won’t be the last. Oh, and a fourth thing: wash your hands.
There’s a lot more information about the market on our website at www.covingtonalsina.com. Assuming we’re not on lockdown, join us at one of our upcoming events. We’d love to nod at you from six feet away.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. CovingtonAlsina and Great Valley Advisor Group are separate entities from LPL Financial.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, consult with your attorney, accountant, and financial advisor or tax advisor prior to investing.