As I write this, I see the markets have entered a freefall which in turn triggered a circuit breaker that halted trading this morning. For the average investor, this can be very frightening. It doesn’t have to be.
It’s been a rather bumpy ride in the stock market over the past few weeks and it appears we should buckle up for a volatile 2020. This past weekend I was asked by a friend at a dinner party why he shouldn’t get out of the market because of all the terrible news. He was able to site some scary statistics on shipping and manufacturing. The big question then was, “Based on all of this, shouldn’t I get out of the market?”
My response to him was that everything he just told me was already reflected in market prices. The current deflated prices were marked down because of everything he mentioned plus some. The market could drop another 30% from where it is right now, or there could be some breakthrough announcement in the news that sends stocks sharply higher. This second part is why it is a very bad idea to “get out”. One day this will turn around and you want to make sure to be in the market to capture the gains. Mountains of evidence has shown us that trying to time the ups and downs is a loser’s game.
If you are currently in “accumulation mode” where you are regularly contributing to a 401k, IRA or investment account, this downturn will most likely end up being a healthy correction where you are able to buy stocks on sale.
If you are currently in “distribution mode” where you are living off your investment portfolio, hopefully you are working with someone who positioned you with an appropriate portfolio where you have plenty of fixed income assets to weather this storm.
One word of caution during times like these: we’ve seen in the past where annuity sales have increased as people looked for a safer haven from market volatility. This is rarely a good idea. Annuities and life insurance as an investment are like locking in a “D+“ grade because you are afraid of a failing grade. With history as our guide, riding out the storm will earn you an “A”.