“The four most dangerous words in investing are: “This time it’s different”.”- Sir John Templeton
Whether it was SARS, the housing crisis of 2008, or other world events that came before, we probably caught ourselves thinking “this time is different”– this time housing prices, the markets, whatever it may be, will plunge and not recover. Yet if history has taught us one thing it would be you would have been wrong, markets have done one thing over time- go up. So why is it every time there is a bump in the road we feel like “this time is different”?
The latest bump in the road is the impact on the investment market as a result of the fear surrounding Covid 19 (Coronavirus). The global threat of the virus spreading and how that will affect our economy continues to impact the investment market. It’s important that we look at the market changes in context, which is that over the past 10 years the S&P 500 index has more than doubled in value. Less than 2 weeks ago it was at an all-time high. This all-time high was achieved despite wars, recessions, global panics, political scandals, and any number of troubling events stretching back over dozens of years. The index has rebounded from every other event which occurred during the 20th century and there is no reason to believe this time is any different. Sometimes it rebounds quickly, sometimes it takes a bit longer. The important thing to keep in mind is that recovery has always occurred.
The media has painted the situation with one brush, that the stock market has plummeted. A balanced, diversified and reasonable portfolio gets ignored in the hype. It is all about risk and reward- if you are heavily invested in equities you will have seen a bigger decline but during good times you likely experienced higher returns. Alternatively, a more diversified portfolio would have experienced a smaller decline with slightly lower returns when markets are performing.
When markets decline, whether it is 1% or 12% or more, even the most seasoned and intelligent investors can succumb to fear and panic. Panic selling leads to locking in losses, possibly never reinvesting, or making even riskier choices to try to make up lost ground. Market conditions come and go. This is repeated time and again. There is never a sign held up indicating “troubling times are about to begin”; likewise there is never a sign held up indicating “all clear” however history has shown that no global health crisis has had an enduring impact on the market’s growth.
Your best bet is to invest on a regular basis in a thoughtful manner balancing stability, risk, and opportunity. Invest in a manner that respects your own tolerance for volatility. Sleep soundly at night by sticking with your plan and taking comfort in decades of positive market history.
If you are about to hit “sell” and jump out, call your advisor, it is times like this that their advice can help you from locking in losses and give you the confidence through the turbulent times so you can be there to reap the rewards when markets recover and once again grow.