By Michael Donahoe
We have been living in this new normal for months now, and although many of us have adapted to the major changes that turned our lives upside down, a cloud of uneasiness still looms large. Even the term “uncertain times” doesn’t do justice to the scary or frustrating circumstances in which we find ourselves.
As expected, the stock market and economy, neither of which like uncertainty, have reacted to things with unprecedented volatility. If you are worried about your financial security, it’s normal to find yourself asking questions such as, “How will I get through this?” and “What does this mean for my future?”
While the severity of these events is not to be minimized, we can battle fear and anxiety by going beyond the headlines and educating ourselves with the facts. With that in mind, here are 4 important things to keep in mind as volatility continues.
1. Research > Reacting
This concept applies to many areas of life, but it’s extremely valuable to remember when it comes to making any hasty changes to your financial plan. News outlets want to catch your attention, which means they are prone to exaggerate information or possibly not include comparisons that would clarify what their information means. This can be frustrating.
Here’s an example of a comparison that provides some context for how things can seem much worse than they really are. The stock market dropped 7% on March 9th, 2020, which was the largest drop in over a decade. (1) But what wasn’t mentioned is that the stock market prices decreased to the same value as they were on January 9th, 2019. (2) Was anything important or scary happening in January? Nope. It was just how the market fluctuated on that particular day.
When headlines are dramatic, it’s hard not to respond in kind. But remember, news outlets want to catch your attention, which means they are prone to exaggerate information. Instead, keep a clear head by looking at the stats and put current conditions into perspective.
2. The Long-Term Matters
Now that we know to do a little research instead of making desperate moves to potentially save our money, here’s an analogy that will give us perspective as to how the stock market and our investments behave. People’s moods can fluctuate on a day-to-day basis and so can the stock market. However, if you look at someone’s personality over a long period of time, their moods average out and usually improve with maturity. This probably doesn’t apply to everyone you know, but stay with me! In the same way, the stock market is stable over time. The value of your investments also grow and mature with time, even with short-term ups and downs.
Here is a graph that shows this long-term stability, despite short-term market fluctuations. This is the Dow Jones Industrial Average (DJIA) showing over the last 30 years of investment value, which is a fair representation of the market as a whole if you are an average investor.
If you remember the 2008/2009 crash, as seen above, the market recovered really well. The market always recovers, and it will continue to do so.
3. Let Your Money Grow
Based on what we’ve seen in the past, what’s going to happen when we ride out the stock market roller coaster and keep investing consistently? We will experience growth, work toward financial confidence, and save ourselves a lot of stress when future downturns come.
When the stock markets go down, you can think of it like a Black Friday or Cyber Monday Sale, where stocks and mutual funds are on sale and you’re getting the best deal on your money. However, if you choose to sell back your funds, or, staying with our example, return a previous purchase you bought for full price, you will get a fraction of your money back. You’ll lose money.
If you consistently invest and don’t take any money out until retirement, you don’t need to worry. Don’t become frantic and start selling back everything you bought for a much higher price. Let it grow and mature.
4. Professional Support Can Make All The Difference
Research will help you keep a clear head and keep you from panic-induced decisions, but when it comes down to it, it’s extremely beneficial to talk with someone who works with this information daily and can help answer concerns specific to your situation and phase of life.
Depending on your age and financial situation, you might not feel like you have as much time to let the market bounce back. This is why it is even more crucial to make sure the types of investments you have make sense considering your risk level. Lower-risk funds don’t go up and down as much as some other more aggressive growth funds. This is something to discuss with a financial professional to make sure your investments are where they should be and are ready for future market swings.
We’re Here To Help!
Despite social distancing and sheltering in place, remember that you are not alone. We hope you take comfort in knowing that our team at Harvest Asset Group is here for you. We know the volatile markets, among other things, are likely causing you concern regarding your retirement plan. Let us share your burden. Call us at (207) 775-1151 or email us at firstname.lastname@example.org to learn how we can help.
Michael Donahoe is the founder and principal of Harvest Asset Group, LLC, an independent, fee-only financial planning and investment management advisory firm in Portland, Maine. Michael enjoyed a successful corporate career in marketing and sales before transitioning to the financial planning profession, founding his firm in 2012, where he now leads the client services team and serves as the firm’s chief compliance officer. Michael earned his MBA degree from George Washington University and completed his educational requirements to earn the CFP® mark of distinction at the University of California, Berkeley. He is a Fee-Only and NAPFA registered financial advisor, a designation which followed the completion of rigorous continuing education requirements. Michael has lived in the Portland area since relocating from San Francisco in 1995 to be closer to family. He is active in community affairs and spends his non-working time enjoying the natural beauty of Maine.