Dear JOYN clients and friends,
The news surrounding COVID 19 is scary.
Stories abound about community transmission, the lack of enough COVID 19 tests, quarantines, infection rates, and mortality rates. Millions are being laid off from their jobs. Hotels, restaurants, and airlines are struggling to survive. Unemployment rates are skyrocketing.
The S&P 500 is down more than 30% from its high in February.
The losses are piling up. Many of us are feeling shell shocked and wondering what to do to protect ourselves.
We wonder, “why should we stay invested in this crazy and tumultuous market?”
Because it is the right thing to do. Let me explain.
COVID 19 will not last forever. Today’s threat will lessen and fade with the creation of vaccines, anti-viral drugs, and other health safety measures.
In the interim, we need to protect our health and protect our money, each in their own unique way.
Although the Coronavirus is temporary, the results have the potential to be permanent. Not everyone survives the virus. Because of catastrophic risk, it makes sense for us to work hard to avoid getting the virus, and if we do, prevent spreading it to others. We need to engage in social distancing. We need to wash our hands thoroughly and often. To protect ourselves, we want to support our immune system by eating well, getting plenty of sleep, and exercising.
Taking action today helps us reduce the chance of a permanent loss, for ourselves and others.
U.S equity markets have rallied meaningfully following multiple different U.S. recessionary periods. This shows the S&P 500 average and median 6-month returns after trough for the following time periods are 26% and 25%, respectively.
Understandably, there is a temptation during stressful times like these to “take action” and to “protect ourselves”. There is a pull to sell our equities before they plunge any further and move our money to the “safety” of cash and bonds. We tell ourselves we can do this because we will reinvest the money in equities when the market calms down.
This strategy rarely works.
Once we feel the relief of selling stocks and moving to cash, we are reluctant to invest again until we are sure that things are better. We delay investing because we are concerned it will go down again, so we wait. We usually wait so long that the markets are recovered and posting hew highs. So, we end up selling when stocks are down and buying when stocks are up — converting the temporary losses from a bear market into permanent ones.
Taking action by selling our stocks increases the chance of a permanent loss.
Take care of yourself. Take care of your loved ones. For your health, do all the things the experts advise. For your money, with a well-designed portfolio, remember that doing nothing is probably the right thing to do.