If you’ve got any money in the markets, you’ve probably had your eyes glued to the Dow Jones, NASDAQ, and the S&P 500. We know we have. It’s been a rollercoaster of ebbs and tides, with drops that dip historically and sudden spikes of activity – both buying and selling. We want off this ride just as much as you. Calling the current stock market “volatile” seems like an understatement. But just as ignoring the economic impact of COVID-19 can be harmful, obsessing and letting the current stock market volatility control your actions is a road to financial disaster.
It’s Easy to Fixate on Current Stock Market
In the last two months, we’ve seen drops, halts, and rallies across all indexes due to the Coronavirus. This pandemic – especially in the United States – has caused uncertainly in all sectors of life: from what you should and shouldn’t do as an individual, to businesses reduced or shuttered by state measures. It’s easy during this time to fixate on the stock market – especially the negative and think that “I need to get out now before my stocks drop any further.”
Stock Market and Economic Terms to Keep in Mind
We totally understand. As a no-bonds investment firm, we’re always focusing on the stock market. But our job is to look past the individual events that clients and traders dwell on, to focus on the overall and long term. A few things to keep in mind:
- A bear market is an indicator but not a trend. When the stock market drops 20% or more from its last high, that’s a bear market (the opposite, a rise of 20% from the last low, is a bull market). Markets can rapidly (and have in the previous two months) switch from bear to bull and back again.
- A bear market is not a recession. A recession is not measured by the stock market, but instead the GDP (Gross Domestic Product). Two consecutive quarters – 6 months – of decline marks a recession. We’re not there yet, so everything is speculation right now.
- A trading halt is a circuit breaker. On March 9th and March 16th, automatic halts occurred to pause trading. As our own Misty Lynch said in her blog, these are the stock market equivalent of a timeout. They are to allow people to calm down and think rationally.
This Blog Post Could Be Written for Any Year
All of the above, from worries of recessions (and actual recessions) to bull and bear markets and trading halts, have played out before. It’s easy to feel like those panicking traders unless you to mentally step away from the stock market and think objectively. This is what we’re helping our clients see. The stock marketing is – on some scale – always changing with highs and lows. It’s important to do your research and not just fixate on the now, but also review how the market has faired in the past with these problems and looking into the future to see that “new normal” that will emerge.
The Importance of Patience
Patience isn’t the ability to wait: it’s having the right mindset as things move forward. Part of our investment philosophy is built around being ready but not being impulsive. Investments that end up being wildly successful rarely go from obscurity to prominence overnight. It can sometimes take years for an investment to reach its full potential. The successful investors are those who wait and see instead of being controlled by the market tides of panic and speculation.
Look to the Future – Especially with Long-Term Objectives
We provide full wealth management services, from retirement and estate planning to stock portfolios and investment management. While our financial advisors provide immediate advice and quick solutions, much of our planning focuses on long-term objectives. You too need to focus past the immediate pandemic and take the long view – including staying true to those quarantine resolutions you’ve made to yourself and your family.
We do a great explanation in our blog, Why You Need to Continue Your Financial Plan During COVID-19, of the importance of looking past crises when it comes to your investment and the kind of conversation you should be having with your financial advisor. If you’re an advisor, we collected some advice and tools for you here.
We know this current stock market volatility can be as daunting as the virus itself. What’s important right now is to focus on your financial future and your immediate health. Practice social distancing and keep an eye on your state’s plans. If you’d like to talk to us about your current financial concerns or as a financial advisor, we’re always eager to help. Contact Beck Bode right here or give us a call at (617) 209–2224. Stay safe!