Strategies for the Downturn

Strategies for the Downturn

I’m sure you’ve seen the headlines, but if not, you should know that the global stock markets are dropping as a result of fears about the spread of the coronavirus.  The statistics keep changing, but currently by far the most deaths (2,664) have been confined to China, with 15 reported in Iran, 11 in South Korea, 7 in Italy and four 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 today?  The first 3% drop in the U.S. stock markets was completely unexpected, and nobody could predict the second day’s fall.  The options now are:

Sell today, and then watch to see how the spread of the coronavirus plays out in the minds of day traders and quick-twitch “investors.”  The odds are that the markets will recover before the end of the epidemic, so you’ll eventually have to buy back at a higher price than you sold at—and look like a bit of a fool.

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.

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 about 25% or less—and remember that you already missed the first timing decision.

So in the real, rational world, you have two choices: ride it out, or contact our offices if you are feeling real mental distress over these two days of downturns.  It could mean that you need a permanent reduction in your portfolio’s risk profile before you make a mistake, out of panic, that could cripple your financial future.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

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