I'm investing in the market even though stocks are plunging, and a financial expert agrees it's the right thing to do
- The stock market is in freefall thanks to the spreading coronavirus, and I've been wondering what I should do with my investments.
- I spoke to a portfolio manager who advised leaving my investments alone or even adding more money to the market while shares are cheaper.
- He also said many experts expect this dip to be a "V-shaped recovery," meaning things will pick back up quickly once the global health crisis is over.
- That remains to be seen, but I'm in it for the long haul so I expect that my investments will be valuable again in time.
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At 10:59 a.m. on February 10, I casually sold a few dozen shares of a company whose stock was trading for just below $90. Within less than two weeks, the value of each share had fallen by nearly 10%, and at the time of this writing remains nearly that far off its recent valuation - which has been consistent for more than two years - and sliding still. It might seem like I made a shrewd financial move, but in fact it was just luck.
The company in question didn't suddenly oust a CEO, there was no downgraded earnings prospect for Q2, nor did they receive some slap from a regulator. So what happened to precipitate such a rapid drop in value? COVID-19.
As the world got sick, so too did the stock market. And as I watched my portfolio shrink over the course of the last days of February and the opening days of March - a period during which the Dow Jones slid downward nearly 5,000 points - I was relieved to have taken a portion of my equity out of the market but unsure what move to make next, especially since I had planned to liquidate my shares of several other companies to help offset the cash purchase of a new car. I was loath to turn to our savings account, but knew taking money from depleted stocks would be a huge loss that wouldn't be coming back.
Don't change your long-term investment strategy
During times of uncertainty like this one, most financial planners have one primary piece of advice: Stick to your plan. "The main thing we tell investors is make changes to your allocations because of your long-term goals, not based on the headlines," said Jeff Hank, porfolio manager and investment officer at Country Financial.
"With a comprehensive financial plan coupled with appropriate asset allocation, your portfolio will recover. A good plan includes and accounts for market declines. It happens, and it's all part of the plan," said Hank.
Long story short, if you have investments in place and a financial plan created with the help of a professional, the best action you can take right now is likely no action at all. That is, unless you are looking to go deeper into the market.
Should you invest more while the market is down?
Asked whether now, during the COVID-19-induced market decline, is a good time to invest, Hank said unequivocally: "Yes. It's a good time. It's a good entry point into the market. This [dip] is a response to coronavirus fears - we don't think it's necessarily a market correction. The underlying health of the economy, it's important to remember, before the coronavirus was very good. Solid jobs, good unemployment figures, good consumer confidence, improving home sales, accommodative interest rates - all that leads us to believe that most likely this will be a V-shaped recovery."
In a "V-shaped recovery," the markets see a steep decline with a brief trough followed by a rapid recovery, whereas in a market correction, stock prices stabilize at a reduced value. If indeed the COVID-19 sell-off scare is the former, then selling off is the worst move you can make.
Even those near retirement should stick to their plans, said Hank. "Hold to the plan you've got in place. If you're near retirement then you have the appropriate asset allocation. You have an amount of fixed income in your portfolio that will help you weather the storm."
Any advice must be taken with a grain of salt, of course, as other experts are now worried this market drop has been too great for anything like a full recovery. We may need to accept some equity lost and settle for a slower build back up. As for me, while I initially expected to be pulling a good chunk of money out of the market, instead I'm planning on things going the other way and buying up shares while prices are low.
As for those looking for ways to plan for the next crisis, Hank said: "I mean, I sound like a broken record, but the way to prepare is to have a plan in place. If you have a target, it helps alleviate that reaction we all have to pull back and sell everything. There's really nothing worse than locking in that loss."
But buying a share laid low by virus and waiting until the marker recovers, even if it doesn't return to its recent peak, might just help your individual portfolio recover.
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