The stock market is in flux, but Mitchell-based financial planners say it is not time to panic.
The United States stock market boomed 6.4 percent from March 24-26, marking the biggest three-day surge in the country since 1931 and contributed to the nation’s best week since 1938. Yet, the Dow Jones Industrial Average finished with its worst quarter since 1987 on Tuesday and plunged another 4 percent on Wednesday.
Much of the growth was attributed to the $2 trillion economic stimulus package passed by congress to provide aid during the COVID-19 pandemic, but the Department of Labor recorded 3.3 million unemployment claims last week -- topping the previous record of 695,000 -- and Bank of America Merrill Lynch and Barclays both speculate more than 5 million claims.
Such drastic peaks and valleys in the market are often driven by an event that causes fear like COVID-19, but that does not mean it is time to take action financially.
“Fear often causes people to take action and taking action in a bad financial market is the wrong thing to do,” said Thomas Dice, a certified financial planner for Dice Financial. “Long-term investors are often better served to ride it out. Most of the people have heard that sermon a lot and you have to understand that volatility isn’t the same as loss.”
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Many may be bailing on investments and looking to sell, but this could be an opportunistic time to buy new stocks. Teresa Hart, owner of Teresa M. Hart Financial Services, believes the market will take another positive turn.
Hart cites the fact that the market does not stay down long and purchasing stock mutual funds with fund managers can be likened to “getting your favorite winter coat on sale.”
“When we see a market drop 10 percent or more, I’m not calling you to sell, I’m calling you to buy,” Hart said. “I’m recommending good, solid growth stock mutual funds that are on sale in a downturn. … It’s also a great time to just be reviewing. Everything is down right now, so why not take those investments that have never performed like we anticipated and move them. I haven’t had a single call to sell, only to add.”
When investing in certain companies, financial advisers caution to look at the underlying value of a company rather than what the market says today or next week, because the outlook years down the road is likely far greater.
It is also important to have a diverse portfolio -- a mixture of stocks, fixed income and commodities -- during a volatile market, because they tend to react differently to the same event. The new stimulus bill should also provide temporary relief for individuals and couples with an adjusted gross income of less than $75,000.
“Have a long-term time horizon and make sure you always have ready cash to pay your bills if you possibly can,” Dice said. “For those people who do not have emergency savings or haven’t had the opportunity to have emergency savings, that’s where Congress’ actions were very positive.”
Even with the sharp dip in the market currently and severe unemployment projections, Hart does not predict a financial crisis like the one experienced in 2008 and 2009.
High mortgage approval rates led to a banking crisis more than a decade ago, but now banks are sturdy. In fact, it could be those that pull out of investments too soon that could be in jeopardy of losing more money in the future.
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“After a huge drop, within months and the year after the market drop, the market has gained so much that people aren’t back in,” Hart said. “They think it’s going to get even better, and chances are, they’re going to be the ones that say, ‘I lost everything.’ The only time you get hurt on a rollercoaster is when you jump off.”
