In the midst of all that you are hearing and seeing on the news, it’s easy to become afraid and start to panic. The Coronavirus is a serious illness that is definitely impacting the world economy. The battle between Russia and Saudi Arabia over oil prices coupled with the ban on travel is forcing oil and travel stocks to new lows. However, it seems like things are starting to change. As you know, we’ve been waiting for a market correction, and officially in March we have ‘ended the longest Bull Market in History’. However, remember, the market is supposed to ‘correct’ (back to more realistic numbers) every 3-5 years. We’ve just gotten used to things staying stronger for longer and now feel surprised at the natural rhythm of the market’s cycle.
We know this time will end…
The market is responding to the uncertainty of the Coronavirus. This was not started as a financial crisis – it was a medical crisis that has become an economic crisis. We need plenty of patience while officials sift through the current situation and most of us are sitting at home. Hopefully, we can put this behind us sooner rather than later. History shows us that if we stay invested, we will be well positioned to enjoy the gains when the market comes roaring back.
Focus on what you can control…Four Strategy Tips
Stay calm and positive. Remember: You will be ok and you are not alone! Let’s remain focused on what we can control so we can make good decisions moving forward.
1. Keep your money in the bank and stay invested in the market
For most of us, we should stay invested and keep our money in the bank. The stock market is like a roller coaster with ups and downs. If you pull your money out now, you are guaranteed a loss. But, if you ride it out, historically, the values eventually go back up. Stay invested in quality businesses with products and services that the world needs. Regardless of what happens to stock prices, quality companies are the ones we believe will compound your family’s wealth for decades. Remember, we recommend buying companies, not stock prices.
The money you have in the banks are insured by the FDIC and protected up to at least $250,000.
2. Don’t try to time the market
Unfortunately, no one knows how long this will last. Don’t try to identify the bottom of the market. We can’t do it. It’s similar to the fact that we can see the signs of spring, but we can’t say exactly when spring actually ‘happens’. The same is true of the market. We can see signs of the bottom, but we won’t know it was the bottom until we look back in time. Using history as a guide, however, it shows that the economy will recover. In fact, the market has always gone back up, even after the dot-com melt down, the crash of 2008, and other pandemics like SARS, etc.
3. Conserve and plan.
Now is the time to go into conservation mode! Cut out all unnecessary spending like XM Radio or gym memberships that you’re not using right now. Re-evaluate your cell phone and home data plans. Confirm you are not paying for more of a plan than you need. During times like these, it is ok to stop paying extra on your debt. Focus on paying for the absolute necessities: Food, Utilities, Shelter, and Transportation.
If you’ve been laid off from work and will no longer be receiving a paycheck, create a budget for the money you have in the bank now. Decide where you’re going to put your dollars to work and make sure they are the critical items. The same thing is true if you’re already retired -- make sure you’re spending money only on necessities. See if you can afford to take out less from your investment accounts for a few months. Conservation is the key.
4. Now may be the time to invest.
Plan, purchase quality companies you believe in, and hold. Warren Buffett once said: “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” It may not feel like it, but right now it is raining gold. Rather than shrink back in fear, if you’ve been thinking of increasing your investments or investing in that ROTH IRA/Traditional IRA, now is the time to consider buying. We can’t time the market, but we can create a plan to invest over the next few weeks and months and it will be like buying stocks in 2018 or earlier. Remember, like any stock investing, this should be money you won’t need for at least three years.
Stay true to your principals and philosophies.
As an investor, if your plan is to focus on owning quality companies and quality municipal bonds instead of worrying about daily prices, you will feel more confident when unexpected events happen. You’ll be able to sleep better at night. Stay the course!
Some of us have a longer horizon than others, but generally speaking, investing in quality companies without expecting to trade in and out of their stocks allows an investor to concentrate on the underlying businesses, their financials, and their management teams. Investing in a group of companies that you believe in and that can stand the test of time helps you handle the emotions of the day. So, even though portfolios are all down right now, if you stay true to your investment philosophies, you can trust your judgement about the companies you have invested in, and remain confident that they will eventually get through this and increase in value.
Each investor is different and none of the comments above should be considered a recommendation. Each person should consult with an experienced financial professional before making any investment decision.
Kate Hyland Mercer is a Financial Advisor for Ferris Wheel Financial, Inc.
417 Commercial Court Suite F, Venice. 941.483.3600, Kate@FerrisWheelFinance.com
Advisory services are offered by Ferris Wheel Finance, Inc., a Registered Investment Advisor in the State of Florida.