Feeling brain-numb from crash-coursing CORONAVIRUS? Doing your part to flatten the curve? Everyone hunkered down here in Central Iowa seems perfectly healthy. Yet I was a math major. The numbers rarely lie (it’s usually the person behind the numbers that’s lying). Things here, health-wise, will change…soon.
What greatly concerns me? It’s not the stock market. I’ll get to that in a second. It’s the people and nonprofits I care about who are losing their income. This is BIG. In just a week’s time: My fitness trainer says his colleague who used to have 5 clients a day is down to 0 (zero). One week ago I attended the opening of a fabulous show at my beloved Lookingglass Theatre in Chicago. Today…show closed, theater dark. My friend who teaches skiing at a ritzy Colorado resort…mountain closed abruptly yesterday and she was told to empty her locker. My head spins when I think of all the people in the hospitality industry, alone, who are losing their income and for many, their safety net.
This income crisis is another curve that needs to be flattened quickly to avoid catastrophe. Thank goodness House Speaker Pelosi knows how to lead during crisis and to avoid revolutions. She’s helping construct a financial safety net so more people can focus on staying healthy and on keeping our healthcare workers healthy.
The financial markets served as a wake-up call to this Administration where the infectious disease experts were ignored. For the investing public, this past week would make anyone nervous. If there’s one thing the markets don’t like, it’s uncertainty. And the markets screamed loudly and clearly.
One of the things that comes with age is experience. I’m providing this list of major US stock market declines that have occurred during my working career. In the moment, each one was characterized as “unique” or “unprecedented”. What’s consistent is the market response over the year following the event.
- Black Monday (8/87-12/87) – Stocks fell 33.5%; recovered 21.4% within 12 months
- Gulf War (7/90-10/90) – Stocks fell 19.9%; recovered 29.1% within 12 months
- Asia Monetary Crisis (7/98-8/98) – Stocks fell 19.3%; recovered 37.9% within 12 months
- Tech Bubble (3/00-10/02) – Stocks fell 49%; recovered 33.7% within 12 months
- Financial Crisis (10/07-3/09) – Stocks fell 56.8%; recovered 68.6% within 12 months
- US Credit Downgrade (3/11-10/11) – Stocks fell 19%; recovered 32% within 12 months
- US Trade Wars (10/18 – 12/18) – Stocks fell 19.6%; recovered 37.1% within 12 months
That experience has taught me to stay calm during market freefalls. Take heart; the markets will recover. These events, while extraordinary in their circumstances, lead to similar recoveries.
If you don’t have a financial plan in place, make a point of doing it now. I use tools that stress-test the plans I craft with my clients against these types of dramatic market moves. My clients are more confident when faced with these scary times knowing we created the plan when we were calm, rational, and fully expecting these types of events to occur. Part of their portfolios are invested in high quality lower risk assets so they have resources to tap into for living expenses and emergencies; we don’t have to sell higher risk assets when the market has temporarily driven down their values.
I’ll close with: Wash your hands frequently, don’t touch your face, keep your distance in public places…and invest generously in taking care of others who have lost or are about to lose their incomes. Let’s preserve what’s truly important.