Are you panicking about the stock market? I know it’s hard not to. This past month has been a roller coaster. The DOW drops 2000 points! The greatest decline in history! It’s back up again – wait there’s an oil crisis it’s back down. But the thing is, unless you are super close to retirement or already on a fixed income, there’s no reason to panic. Here’s why you should stop panicking about the stock market.
Stop Panicking About the Stock Market
A Crash Was Coming
The market was riding high for over a decade. We had the longest bull market in history! And everyone knows that the bulls can’t run for ever. We knew it had to fall at some point, but what we didn’t know was when or what the reason would be.
Well, now we know. The market is crashing because of a global pandemic. I don’t think anyone would have ever predicted this cause, but here we are. If you’re going to panic about anything, it should be the pandemic. Wash your hands and stay inside to help stop the spread.
Most Companies have Strong Fundamentals
The interesting thing about this crash is that it didn’t happen because companies were doing risky things with their balance sheets, or because people were over-extended. To be fair, people are clearly over-extended and we need some structural change to fix that, but that’s not what led to this crash.
The pandemic is what caused this crash. People are being told to shelter in place, to stay home. Companies that aren’t essential to life have been ordered closed, to save lives. The economy is grinding to a halt, not because it was weak, but because it’s what needs to happen to keep people safe.
In my opinion, most companies will bounce back from this. The economic stimulus package put forth by congress and signed by the president was designed for businesses. Most won’t fail. And that means that if you have a diverse portfolio, it will bounce back too.
You Don’t Lose Money Until You Pull Out
I wrote a post on the difference between realized and unrealized gains and losses a few years ago, and I think it’s important to revisit that topic now. If you stay invested, you didn’t really lose anything yet. But the minute you sell, you are locking in those losses.
Like I said, I truly believe that the market will recover. It may take 6 months, a year, or even longer, but eventually it will recover. If it doesn’t, and the entire US economy completely collapses, we will have a lot more to worry about than the stock market.
Buying on Sale
Ok, so we’ve established that more than likely, most companies will survive this and the market will eventually improve. That means that if you stay invested, you are basically buying stocks on sale. Even if you aren’t actually putting more money in right now (which you should be doing if you are able), the investments you have are still probably making dividends, which should be reinvesting back into the market (unless you’re living off of your dividends – that’s a different story).
Since you’re basically buying all these stocks while they’re on sale, that means you get more of them. And that means that when the market recovers, your portfolio will be better than ever. But none of that will happen if you pull out now.
So stop panicking about the stock market, stop looking at your portfolio, and let the market do it’s thing.
If you’re interested in trying to buy stocks now, but aren’t sure which ones to get, check out this awesome guide on analyzing financial statements. It will help you figure out which stocks are great values.
What Should You Panic About?
I think we pretty clearly established that we shouldn’t be panicking about the stock market. But, I’m not some out of touch millionaire blogger who thinks everything is fine just because I’m not personally affected. I actually am personally affected, I lost over 50K in the market so far, which is a ton of money for me. And, I’m pretty sure it’s going to lose more value. But, I’m doing my best to not panic about it, to stay the course, and to keep investing for when it eventually recovers.
But if I’m not some out of touch investor, why am I saying not to panic? There’s clearly a ton of stuff to panic about! I just don’t think the stock market is one of those things. So, if we aren’t panicking about the stock market, what should we be panicking about?
To clarify– panicking is never really the answer. We should do our best to not panic about anything. But there are some things happening right now that we should think about, dare I say worry about, and do what we can to help.
Instead of panicking about the stock market, we should be focused on the pandemic. And not what it means for the stock market! We should be worried about what Covid-19 means for the million people who have already been infected, the 50,000 people who have already died, and the millions more that are going to get it in the next few weeks.
So far, this virus has about a 5% death rate world-wide. We should be very concerned about this. We should worry about what this means for us, for our friends, family, and neighbors who might be more vulnerable to the virus.
That means we should follow the instructions of our health care officials. If they are advising us to stay home, we should stay home! We need to maintain the recommended social distancing and do everything we can to stop the spread of the virus. If social distancing is getting to you, check out my posts on how to stay connected while social distancing and fun things you can do while social distancing. Maybe you’ll find some ideas to make your quarantine life a bit easier.
We should be way more concerned about the 6 million and counting people who lost their jobs than about the stock market. The businesses will bounce back. Its much harder for individuals to bounce back, especially when so many were barely surviving in the first place.
And I know, I know. The push-back is going to be “They should have prepared better”, “They should have an emergency fund”, “They should have gotten better jobs”. Well that’s unrealistic and unproductive. Maybe some of that 6 million could have gotten a better job, and a few mismanaged their money, but the reality is that there’s a poverty trap in the United States. There are systematic structures in place that work to keep people poor, keep people in debt, and keep people barely scraping by. This is what should concern us.
Fixing the System
We should use this pandemic as a learning experience to fix the fundamental flaws in our system. It has clearly highlighted a lot of them – access to healthcare, what “essential” means, conflating economic value with human value, and more. Now, more than ever before, these problems are being exposed. We can either use this as an opportunity to make sweeping changes to our system, or ignore it and continue on a path towards increased inequality and a world where the rich get richer while the poor perish.
The choice on this is ours. So stop panicking about the stock market, and do something to help change the system so that something like this doesn’t destroy our humanity.