In late March, when it became clear that coronavirus was a real cause for concern in the U.S. and businesses began to close or streamline services, leaving many workers unemployed, it was hard to watch the stock market tumble 34% in just a few weeks. Investors began to panic and asked their top financial advisors, “What do I do?”
Do you cash out? Do you buy? Do you sell? Do you find ways to hedge?
During these trying times, the best but most difficult answer may be to sit tight and let your portfolio rebalance itself. As an investment article in the Atlantic asserts, “Study after study has shown that ‘active’ investors, meaning ones who shuffle investments around to take advantage of new information and supposed opportunities tend to do worse than ‘passive’ investors, meaning ones who buy the broad market and walk away.”
Investment requires a long-term approach and provides long-term results. The panicked are comparing the current market situation, in light of the Covid-19 crisis, to previous momentous declines, such as in 1987 and 2008. And there are similarities. However, it’s helpful to realize that regardless of how bad March’s economic downturn felt, the total drop in 2008 was almost ten percentage points worse. Furthermore, it is important to note that following the 2008 recession, the market not only recovered, but it actually climbed past its previous record highs less than three years later. Long-term outlook pays off!
Even in our current situation, we’ve watched stocks quickly rebound from their late-March low. The Dow Jones industrial average posted its strongest quarter since 1987, after surging 17.8% in the past three months. The Standard & Poor’s 500 surged nearly 20% in the second quarter, its best quarterly gain since 1998. The Nasdaq Composite rallied 30.6% in the second quarter, its best such period since 1999. Professional investment firms are clearly discovering and utilizing sound strategies to help the market recover.
What that means, to return to the point, is that staying invested is probably the best option. The strategies mapped out by Matt Rosenberg, CPA, and a member of the AICPA’s Financial Literacy Commission in a Forbes article, such as “rebalancing, tax-loss harvesting, and selling/replacing inefficient legacy securities from portfolios” are great ways to respond to a downturn without selling low. If you are unsure what to do during this crisis or need liquidity, consult a professional about the best strategies for your personal situation. You’ll be glad you didn’t panic – the market always bounces back.
If you have any questions or concerns, contact TrueNorth Wealth fee-only financial planners to get advice on how to best manage your current portfolio. TrueNorth Wealth has offices in Salt Lake City, Logan, and St. George, UT, for those who would like to schedule an appointment.