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Not My First Rodeo

COVID-19 is not my first rodeo. Well, to be clear, I don’t have any prior experience with this virus. Still, I do have experience with some other pretty nasty market events, including September 11, 2001, and the Great Recession of 2008. This is one of the benefits of being a more “experienced” financial planner. We’ve been through scary times before, and we will make it through this one as well. Of course, we will likely come out on the other side with a new “normal” just as we came out of 9/11 with new airline security rules. I can’t predict what changes will occur as a result of COVID-19, but I can look back at the takeaways from 9/11 that apply now.

  • The people who get hurt on the roller coaster ride known as investing in the stock market are the ones who jump off in the middle of the ride. Yes, stock prices are down — a lot. But history shows they should come back up again in time. I don’t pretend to know how long it may take, but the chart below gives some historical context for how long it took an account invested 60% stocks and 40% bonds to bounce back after other past crises.

Market Response To Crisis

  • If you need money for a purchase you plan to make in less than five years; the money should be held in a savings account or money market fund and not invested in the stock market. There’s a big difference between savings (short-term) and investing (long-term).
  • Times of uncertainty make clear the importance of having six months of expenses in a savings account. You may not get a bonus you were counting on (like Clark Griswold in Christmas Vacation), or you may have some additional medical expenses this year. Having cash on hand for the unexpected can provide confidence that you will make it through this crisis.
  • Spoiler alert: We cannot control the stock market. Instead, focus on the things that are in our control:
    • Continuing to save for financial goals like educating your children, traveling, becoming financially independent, and other things that are important to you.
    • Take an appropriate amount of risk (percentage you invest in stocks and percentage you invest in bonds) in your investment accounts.
    • Having a long-term investment strategy to help accomplish your financial goals.
    • Making sure you have the appropriate amount and type of medical, life, disability, and long-term care insurance. It’s not glamourous, but it is a critical foundation of your financial plan.
    • Have a will, power of attorney, and advance healthcare directive that reflects your current family and financial situation.

If you don’t have a financial plan that helps give you peace of mind that you are controlling what you can reach out to one of us at Bridgeworth. We’re happy to provide a second opinion. In the meantime, consider stepping away from your newsfeed for a while. Just like it was helpful to turn off the tv for a while during the 9/11 coverage, it may reduce your stress to step away from social media more often during this crisis.

The information and material presented in this blog post are for general information only and do not specifically address individual investment objectives, financial situations, or the particular needs of any specific person who may receive this commentary. Investing in any security or investment strategies discussed herein may not be suitable for you, and you may want to consult a financial advisor. Nothing in this material constitutes individual investment, legal or tax advice. Investments involve risk, and an investor may incur either profits or losses. Past performance should not be taken as an indication or guarantee of future performance.

Investing in stock includes numerous specific risks, including the fluctuation of dividends, loss of principal, and potential liquidity of the investment in a falling market.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk.