I’m sure you’ve seen the headlines, but if not, you should know that the global stock markets are (or were, depending on when you read this) dropping, likely influenced as a result of fears about the spread of the coronavirus. The statistics keep changing, but currently by far the most deaths (2,600+) have been confined to China, with deaths also reported in Iran, South Korea, Italy and on a Diamond Princess cruise ship off the coast of Japan.
We have no idea how far or fast the disease will spread, and neither do the markets.
What is the best course of action? The first 3% drop in the U.S. stock markets was completely unexpected. During any sudden drop in the value of your portfolio, the options are:
1. Sell, and then watch to see how the what plays out in the minds of day traders and quick-twitch “investors.” The odds are that the markets will recover in due time, so you will eventually have to buy back at a higher price than you sold at—and look like a bit of a fool.
2. Wait until there is confirmation that we are, indeed, in a real bear market, sell at or near the bottom, and then see the markets rise past where you sold—and look like a bit of a fool.
3. Hold tight, ride out the downturn (however long or short it might be) and experience the next rise (whenever it comes) and breathe a sigh of relief that the markets were not down permanently for the first time in human history. You’ll do some sweating along the way, but in the end, you’ll look like a winner.
Market timing during times of market stress is psychologically appealing, but in the real world it is pretty much impossible to execute. Not knowing when to “get out” (Yesterday? Two days ago?) and especially not knowing when to get back in, mean that your odds of getting it right twice are astronomically low.
So, in the real, rational world, you have two choices: ride it out, or speak with your financial planner if you are feeling real mental distress over downturns. Making irrational trades under emotional duress could cripple your financial future.
This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice.