Benjamin Graham, the father of value investing, reminds us to “forget about what the stock market is going to do. Instead, focus on what you, as an investor, ought to do…”
So what do we really know about the financial markets?
First, what we don’t know:
- The full global economic and market effects from the coronavirus. It’s too early to tell.
- Where the bottom is.
Now, on to what we do know:
- The novel coronavirus has significantly impacted the global economy and financial markets.
- Market downturns are inevitable. From 1950 to 2019, market corrections (a decline of 10% or more in the S&P 500) have occurred once every year with few exceptions.
- Global equity markets have experienced eight bear markets (greater than 20% decline) over the last 40 years–or one roughly every five years. A significant market pullback was inevitable.
- It’s painful to experience a market shock (especially if this is new to you) and challenging to keep one’s emotions in check. Your investment journey will be bumpy but tends to have an upward slope over more extended periods.
- It’s essential not to give in to the temptations to make sudden moves during market downturns. As Vanguard’s Global Chief Economist states: “Making impulsive investment portfolio moves in a time of turbulence is never a wise move. We believe that, in the end, securities markets and broader economies will be resilient.”
- Broadly diversified portfolios are designed to participate in the gains when the market is rising and to minimize, as much as possible, the declines when the markets sell-off.
- History shows that while markets react to news events in the short-term, they have tended to reward patient investors over long periods. That is, having an investment strategy and sticking to it will increase the likelihood of long-term success, i.e., achieving your personal financial planning goals. In the words of Schwab’s Liz Ann Sonders – “Panic is not an investment strategy.”
- Having a long-term investment planning and strategy includes regular rebalancing and dollar-cost averaging.
- Bearing today’s risk is likely to be compensated with positive long-term expected returns, as lessons of past health crises (Ebola and outbreaks) and market disruptions (global financial crisis of 2008-2009) have taught us.
How can APC help?