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- The stock market has plunged in response to the coronavirus, which made me panic about the value of my investments.
- After I talked to my financial adviser, though, I felt better - he reminded me that if I leave my investments alone, they're sure to grow over time.
- Instead of pulling my money out of the market, I've decided to invest a bit more while stock prices are low.
- A financial adviser can help you set up a successful investment strategy. Use SmartAsset's free tool to find a qualified professional near you »
It's been a rough couple of days and weeks for the stock market and the financial industry as a whole. With fear and uncertainty over the novel coronavirus (COVID-19) already causing jitters, Russia and Saudi Arabia started an oil price war, driving the price of oil down significantly.
The Dow Jones industrial average had its biggest one-day drop in terms of total points on Monday, March 9, down a total of 2,013.76 points in one day. And the drop of March 9 was not an isolated occurrence - there have been multiple days with drops of over 1,000 points so far in 2020.
Depending on what specific stock or index you're looking at, the stock market is down anywhere from 15 to 20% since the beginning of 2020.
If you're anything like me, it's hard to look at the value of your 401(k), IRA, or other investment accounts as the red ink keeps piling up and the overall value of the account falls off a cliff.
What happened when I talked to my financial adviser
Feeling a case of the jitters, I decided to meet with my financial adviser. After all, that's what I pay him for, right? I frantically asked him if there was anything we could do to stop the bleeding out of every single one of my investment accounts.
"Nothing." That's right - my financial adviser told me to do absolutely nothing. He told me that the absolute worst thing I can do is to pull my money out of the market.
My adviser reminded me that history is on my side - over the long term, the stock market has been one of the best investments out there. The key is that it is over the long term - short-term fluctuations can make for a very rocky ride (as we're finding out now!).
From 1921 to 2019, the Dow Jones has produced an average annual return of 7.75%. But it's not 7.75% every year - some years are up big and other years are down double digits. And unless you have a crystal ball, it's really hard to tell which is going to be which until after the fact (when you've already missed it).
Take a look at what happened the day after some of the biggest drops in history for the Dow Jones:
- October 15, 2008: The Dow Jones was down 733 points (7.87%). On October 16, it went back up 547 points
- October 19, 1987: The Dow Jones had its largest percentage loss ever (22.61%). Then, on October 21, it went back up 10.15%
- March 9, 2020: The Dow Jones was down 2,013 points (7.79%). On March 10, it was back up 1,171 points.
This isn't always the case, but history is on your side.
Timing the market never works
I think my financial adviser is right. I'm a firm believer that nobody really has the ability to time the market. Look at the data above - if you had taken your money out right after those big drops, you would have eaten some of the biggest losses ever and missed out on some of the biggest gaining days in history.
It's very hard - if not impossible - to time the market and know exactly when the market is going up or going down. The only reliable path to long-term success in the stock market is to weather the bad along with the good and keep your money invested, even when your every instinct wants to yank it out and keep it safe under the mattress.
Is it time to add more money?
I actually have a higher-than-average risk tolerance, so as I talked with my financial adviser, it didn't take long for him to reassure me and talk me off the ledge. We then started talking about whether this downturn might present an opportunity.
I think it's prudent to be careful about trying to "grab a falling knife," but it is true that downturns in the stock market can also lead to some of the best opportunities to pick up stocks at a discount. Noted investor Warren Buffett once gave the advice that as an investor, you should be "fearful when others are greedy and greedy when others are fearful."
Personally, I'm planning to start moving money into the market. I don't think that I am quite brave enough to just dump all my available cash into the stock market in one fell swoop, but I do plan to start investing chunks on downturns.
Whether or not adding more money makes sense for you depends a lot on your own unique financial situation. Talk it over with your family and trusted advisers and decide for yourself.
Talk to a financial adviser about your investment strategy today. Use SmartAsset's free tool to connect with a qualified professional »
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