The last couple weeks have been, for lack of a better word, crazy. And of course, I did the one thing you shouldn’t do: look at my investment account balance during the worst of the turmoil. Even as a financial advisor with unshakeable faith in the stock market, big negative numbers in my personal investment account make my emotions run high.
It then occurred to me, though we have had some minor drops and corrections along the way, this is the first official bear market I’ve experienced in my career as an advisor, and the first my peers have experienced in their investing careers as well.
Many of us in the millennial group get accused of being spoiled, and when it comes to stock returns, we certainly have been. We have really only been investing during the longest economic expansion in US history - over 10 years of almost completely uninterrupted stock growth. Things have been so good for so long we’ve just never seen anything like what we are experiencing now.
That was an unusually calm period for stocks, as we usually get a panic or bear market like this every 4 or 5 years. Consider this getting back to our regularly scheduled programming.
Though the stock market didn’t experience much adversity the last 10 years, over the last 100 it has survived multiple epidemics, world wars, financial crises – you name it. In every case, the stock market eventually fully recovered and inevitably went on to new highs. Stocks still managed to reward long-term investors handsomely, and all the panics along the way were merely temporary disturbances of a permanent uptrend.
This too will pass, and will be remembered as one of those speedbumps for lifetime stock investors.
But as a person who is new to market panics and will certainly be tested by more of them in your lifetime, I want you to take note of how this feels.
Yes, the market dropped, and fast. Any wealth you had invested in stocks is now worth less than it was just days or weeks before. In some cases, a lot less. How does this feel?
Yes, everyone is scared. News outlets are constantly bombarding everyone with updates of new cases. People are out buying up all the toilet paper! The world at large is set to “shut down” for a little bit. There seems to be no end in sight. How does this feel?
I want you to recognize these feelings now, when you are young, and more likely to think of a stock decline as an opportunity than a financial death sentence. But even though you are feeling these emotions, do not act on them and panic sell, or avoid buying stocks just because they are down.
Remember how this feels, because it will happen again. It will once again be due to something as scary and unpredictable as a virus appearing out of nowhere. There will seemingly be no end in sight. The stock market will drop to reflect people’s panic. You will be scared too.
As a young person, whose mission is to accumulate as much stock as possible to grow your wealth, you can think of market declines like this as a temporary sale on the things you intended to buy anyway. But this will not be the case later in life when you may be living off your investments which will make any declines even more terrifying.
Throughout your investing career you will be tested by many panics such as this; it will always be imperative that you do not act on your emotions and abandon stocks at the very worst time.
It will become more difficult as time goes on and the stakes are higher, so it is important to train yourself to be able to feel these emotions without acting on them as early as possible. A market panic like this can be a great opportunity to do just that.
I don’t know when things will get better, but eventually they will, and the market will continue its permanent uptrend over time. Life goes on, and episodes like this always tend to just fade away and out of our memory over time. Lifetime investors in the stock market will be rewarded with a lifetime of compound growth.
I often hear my father, Paul Sr. give one of his favorite anecdotes about when he first started working in the industry and experienced Black Monday in 1987, when the stock market dropped over 22% in a single day. He always points out that if you look at the price the Dow dropped to (1,738.74), it would be hard to find someone today who didn’t wish they bought as much as they could when the Dow was at that price.
So one last thing I want you to note: the price of the Dow, S&P 500, or whatever major benchmark you like to track right now. You will look back 20 years from now, perhaps even 10 years from now, and won’t believe the opportunity you had to buy at these prices.
Paul R. Ruedi, CFP® is a financial advisor at Ruedi Wealth Management.
Paul has been quoted in news publications including USA Today, Time Magazine, The New York Times, Dallas Morning News, Forbes, Inc.com, Business Insider, US News and World Report, GoBankingRates, The Street, NerdWallet, and The Penny Hoarder. He also writes articles that have been featured in CNBC, Investopedia, Yahoo Finance, Nasdaq, and MSN Money. He was named one of Investopedia's Top 100 Most Influential Financial Advisors in 2018.
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