What Now? Coronavirus, the Stock Market and the Economy: Don't Panic
These are indeed uncertain times. Many may feel much as they did during 9/11 -- are we safe, how bad can it get, what should we do? Let's address each of these.
1. Covid-19 (aka coronavirus) is real and we don't know if it will be with us briefly or for a long time. It's this uncertainty that breeds fear. We do know that 80% or more survive the virus with minimal effects, no worse than seasonal flu. Those at risk -- the elderly and those with existing health conditions -- need to be particularly cautious. Just the same, current survival rate estimates are greater than 97%. Where can you get the best information on the status of Covid-19 and what you should be doing. Don't rely on rumors, social media or anecdotal reports. Look here: CDC
2. Okay, you're extra worried about coronavirus and you don't trust our government officials to tell you the truth. You'd rather hear from an institution more global in nature. Then look here: WHO
3. The U.S. stock market was at all-time highs just a few weeks ago. The markets returned roughly 30% in 2019. But now we're in "bear territory" with the overall market down roughly 20% from all-time highs. Ouch!! But let's put this in perspective. Eleven years ago this week the market cratered... and then steadily rose as the economy recovered and expanded. The Dow was just below 7600 and the S&P 500 at 798. I won't tell you where they are right now but I'll wait here for a moment while you check... finished? Yes, the recent decline is just awful. But had you been asleep anytime between March 2009 and last year only to wake up today you wouldn't be feeling dread but just that we have hit a bump in the road. But have we?
4. My magic eight ball doesn't give very useful answers so let me rely on history. While I can't promise you that history will repeat itself I can say that as far as investing goes those who take a long-term perspective prevail; those who trade the market more often lose. If you need cash in the next 6-12 months it should be sitting in safe money market accounts and you should always have an emergency fund equivalent to at least 6 months of your needs. If you will use funds over the next 1-3 years for which risk isn't an option (for education, healthcare, home purchase, etc.), likewise -- keep it in money markets, CDs or other cash equivalents. But if you have a nest egg that you want to grow and you can ride out the bumpy periods because you have a paycheck, a pension, an annuity or just money on hand, be a long-term investor and buy low-priced broad market index funds. They're on sale at the moment. Or you can wait to get in when they next hit an all-time high (not a good option).
5. Sleep! We all need it and if watching CNBC all day keeps you up at night then consider turning it off. If that doesn't work and you're still upset about the market... great! You have a better understanding of your personal risk tolerance. We tend not to mind taking on risk when prices are going up (thereby increasing the risk that they will fall) but we loathe taking risk when prices are discounted. It's funny, we don't act like this when we're shopping for food, clothes or anything else. But only you know how much volatility you can withstand. If it's just too much then do what feels most comfortable. But understand that no one can time the market and that whatever you take out may trigger an expensive taxable event. And more than likely when you decide to go back into the market (if ever) it will likely be at higher prices than you're seeing today.
6. Most Americans don't own stock, and those who do own less than $20,000. In fact, 84% of all stocks are owned by only 10% of investors. And 80% of Americans only own 6.7% of all stocks according to Politifact. So while you might be feeling pain right now you might be envied by those for whom stock ownership is only a dream.
7. The economy is heading south. Yup, I said it. Usually election years are good for markets and the economy because candidates tend to promise the moon. But despite the boasts of the current administration the economy wasn't growing significantly before coronavirus appeared (averaging about 2 1/2%) and was already slowing. While unemployment is at historical lows, wages haven't kept pace for most Americans. In fact, corporate tax cuts and deregulation led to stock buybacks which helped to fuel the stock market's performance we've seen since our president took office. But they didn't lead to the creation of new manufacturing plants or high quality/high income jobs.
8. Recessions are normal. A recession is two consecutive quarters of negative economic growth. The average U.S. recession is 11 months. We usually have a recession every 4 years or so. Interest rate reductions, which have already begun, can stave off recession as can government spending and tax cuts. But even if a recession is averted, slow growth can feel like a recession. You probably know people who think that the last recession never ended because they didn't benefit from higher wages or stocks rising. To put recessions into perspective, look here: Recessions end
9. So where does that put us? Take a deep breath. Survey all that makes you happy to wake up each day. Put the current tumult into perspective. Don't live in fear but take the time to learn what you can do to ease your anxiety and to move forward with positive outcomes. And if you want to send a message to our leaders please vote, encourage your friends and family to vote, and know that you can change your world.
10. You can do this!