Over the past few weeks, my feelings have evolved from “meh” at first to “hmm” as markets fell hard enough to even make the bears scared to invest. I’m still at “hmm.” As I’ve stressed over the years, markets gyrate. Though few people other than science fiction writers and doomsday preppers anticipated an epidemic, a century’s worth of stock market history reminds us that markets don’t go up in a straight line forever.
Some investors—specifically the ones who started investing in the past decade--are learning this lesson for the first time. They’ve taken the time and spent good money to craft elaborate financial plans that assume their assets will grow at some long-term rate. But with the S&P 500 down by around 28% year to date as I’m writing this, chances are that whatever financial goals you were saving for seem much farther off than, say, in January.
If you have a well-crafted plan, think very carefully before you abandon it. Good financial plans have realistic assumptions that account for market declines. They will also recommend being more conservative as you get closer to an important financial goal, unless you’ve specifically said you’re willing to risk not meeting that goal in exchange for pursuing higher returns. If your primary financial goal before the coronavirus disruption was chasing high returns, then market risk was part of the bargain. You shouldn’t be surprised about your portfolio being down more than less risky options.
I’m not worried about the market. I’m fascinated by it, but instead of just watching what everyone else is doing, I’m looking for bargains or harvesting tax losses and repositioning portfolios that need it. But I am worried about investors panicking and giving up on their dreams. If you panic, then that only drives prices down for someone other than you to potentially profit. When you hold on, you might be uncomfortable or even scared, but you’re also giving your plan the opportunity to get back on track.
Are there times when you should revisit your plan? Of course. There’s a lot of uncertainty about jobs. If your income is at risk or has changed dramatically in either direction, then you should adjust your plan. The same holds if your expenses change unexpectedly. Lastly, if you aren’t confident how well you planned, get an expert opinion. One way to know your plan might be poorly crafted or simply misunderstood is when your progress is substantially different from what you expected. Good plans assume the markets will be volatile. Good planners prepare their clients to expect the unexpected.
If you’re confident in your plan and your income and expenses are stable, stay the course. You can allow yourself to be concerned, but don’t panic. Let everyone else panic while you enjoy this stock picker’s market.