By David Jackson, MBA, CFP®, C(K)P™ and Martin Spears, Managing Partner Operations, Southern Springs Capital Group
Most of the calls we have received over the last several days have involved this question in some form. Hopefully, as we share our thoughts, you are in a position where you are happy, safe and healthy in these unusual times. While we don’t think most people are actually asking for specific predictions from us, people are always curious how we view the landscape.
1. Generally the economy was in pretty good shape before the Coronavirus outbreak. We could quote you a bunch of statistics, but most of you intuitively know this. Why does that matter? Many businesses were having trouble finding employees before this outbreak. Our suspicion is that many employers will be very reluctant to eliminate employees, because there is a fear that once this has subsided, it would be difficult to get those employees back. Obviously, some employers may hit points where they don’t have a choice, but we believe this may not be as widespread as some people think.
2. Everyone’s an expert – Everyone has a “brother-in-law.” You know the drill. “My brother-in-law” said I should sell everything. “My brother-in-law said I should invest every spare dollar I’ve got.” So how rich is the brother-in-law? Most people don’t know enough details about your specific financial situation to really offer you proper advice on what you should do. Be polite and let them offer you their opinion, but remember everyone’s situation is unique.
3. Most people in the media have a vested interest. During this downturn, it is especially hard to tune out the media because so many people are home-confined and have lots of time to listen to TV, surf the Internet, etc. Remember that most media outlets are driven by ratings. The more sensational things that are said, the better the ratings usually will be. Everyone is a market expert these days, sportscasters and celebrities included. Most all media are biased. Some want you to think things are worse than they actually are, some want you to think things are better than they actually are. The truth is most people should not do anything different during a downturn…if they were properly invested going into the downturn.
4. Why has this downturn been so sharp and fast? What happens during downturns is that it “shakes out” the uncommitted investors. Someone who is living off of their nest egg normally keeps a pretty steady investment mix and doesn’t change it very often unless their circumstances change. Someone who just has some cash that’s accumulated and wants to invest it in the stock market just because its been “doing well,” and cash rates are not all that attractive, is not as committed. So, when the market starts to go down that person has second thoughts and says, “Maybe that wasn’t a good idea” and they sell, which feeds more and more of that behavior. Also, because interest rates have been so low, many people did not keep a sufficient reserve fund. As those people hurriedly realize this, they sell so that they can have more cash on hand.
Many companies have been forced to close or operate at a greatly diminished capacity. This creates uncertainty not only around current profits, but over how long the situation will continue. Some market participants will assume the worst-case scenario for how long these companies will be diminished. As we get more information, we start to see the stock prices of each individual company reflect the most current information available, and we start to see some companies fare better than others.
5. Why not just sell and wait till things get better? Even missing a handful of the best days in the market can greatly change your returns. The chart below shows how missing even a small number of the market’s “best days” can significantly diminish returns.
Also, think about the psychology of selling and waiting until things get better. Either one of two things will happen. You will get back in when the market is even lower than it is at the time you sell (in our experience it’s highly unlikely someone does that, if you don’t like the stock market at the current level, you probably really don’t like it if it falls even more.) Or, you will get back in when it feels “better” again, which is likely to be at a point higher than it is now, which ends up eating into your return.
So, if your circumstances haven’t changed, be very careful about over-reacting during a downturn. But if your circumstances have changed, by all means review your plans and make adjustments if required.
Don’t be afraid to reach out to us. Most people always feel better once they have had a chance to talk with us. That’s why we’re here.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Southern Springs Capital and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
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