The Rationale for Staying Invested

I am reading about the impact of Covid-19 as I push to get all client tax returns completed and filed by the deadline, which may or may not be extended. 

Everyone is concerned and I wanted to respond.

These are scary times, both for personal health for you and your family and for your finances.  We worry about who will get sick, possibly die, and who will be out of work and have major life changes.  

Much of the ultimate outcome depends on how quickly governments respond – “stop everything immediately” contains the infections and thus allows the economy to bounce back sooner, while delayed responses mean many more infections and deaths, with a prolonged, deeper hit to all economies.   

On investing, to those who ask, “should I cash out,” my answer is, “it’s already too late, the markets have already gone down far, and even if you had sold a month ago, knowing when to buy back in is so tricky that you would probably be worse off.”  The truth is, when so many individual investors ask if it is time to sell, that is often a signal to buy. 

Here is an excerpt from a Merrill Lynch research post (credited to Jared Woodard, Derek Harris, Chris Flanagan, Justin Devery and Jordan Young) that I received last week, which crystalizes my experience from the downturns I lived through as well as the downturns I have studied:

Why stay invested?

Not staying invested means missing most of the long-term market upside…it’s simply too difficult to time the market. A strong impulse to hide out in cash is often a sign that a buying moment is near:

• We know that the best days often follow the worst and this has been the sharpest drop into a bear market in history (Chart 3);

• Since 1929, in the 24 months following a bear market, S&P 500 total returns have averaged 20%. Excluding the Great Depression, the average gain was 27% (Chart 4);

• Since 1931, an investor who missed the 10 best days of each decade made 91% in equities. Staying invested meant earning 14,962%;

• In the 2010s, missing the 10 best days meant gaining only 95% instead of 190%;

• Over any 10-year period, the odds of ending with equity losses are just 4%;

Let me know if this helps.  And let me know if you want to talk.   

Again, I hope you and your family stay healthy!

Take care,

Steven

Coronavirus – concerns for your health and finances

This is my busy time, working long hours preparing income tax returns, but I wanted to respond to your concerns.

News of the coronavirus spread and its impact on the economy and stock markets is constant.

People ask: “can I get the virus from a package delivered to me from China” (the answer via the CDC is “no”).

As some say, it’s not “if” but “when” in terms of you being in contact.  That is upsetting.

At that same time, experts ask us all not to panic.  And financial people urge us to stay the course.

If you do not already have a plan, here is a good overview with links to CDC posts on making a plan with your family – NY Times prepare for coronavirus

As for the stock market, here is a good NY Times piece discussing the rationale for sticking to your long-term investment plan:  The Market Is Moving. Most People Should Sit Still.

Here is a more sobering assessment:  It’s a ‘Swimming Naked’ Moment: The Financial System Has a Real Test

In the end, if you developed a good long-term investment strategy, staying the course should be the best response as it was in the 2008 financial crisis.

Let me know if you want to talk and I hope you and your family stay healthy!

  • Steven

What we are reading – for laughs, for serious thought and discussion, and just because

She’s right: This is the Fourth Grader who Asked Obama to put a Woman on the $20 Bill, from BuzzFeed News

Technology: Musk Plots Energy Storage fix Where Utility Industry Failed, from Bloomberg

Humor: Cookie Monster, Life Coach – on YouTube

Health: A 2-Minute Walk May Counter the Harms of Sitting – Even a few minutes per hour of moving instead of remaining in a chair might substantially reduce the risk of premature death.

Language: 20 Common Phrases Even the Smartest People Misuse, from The Muse

Comedy: Penn Jillette’s Big Dumb American Crush on Howard Johnson’s, from Eater

How to Be Emotionally Intelligent – What makes a leader? Knowledge, smarts and vision, but also the ability to identify and monitor emotions and manage relationships. From the NY Times

Comedy: The Man Who Makes the World’s Funniest People Even Funnier. As comedies become increasingly improvisational, they need an editor like Brent White to sew them together. From the NY Times- Quote: “Sometimes you just create a joke out of nothing.”

How Music Hijacks Our Perception of Time, from Nautilus – Quote: “The Royal Automobile Club deemed Wagner’s Ride of the Valkyrie the most dangerous music to listen to while driving.”

What Is Your Purpose? We need to forge new ways to seriously discuss the deepest questions in life with modern tools. This is a start. From the NY Times