Psychologically major crashes in markets can seem like the great equalizer for us poor folks. As a poor man I'll probably never sweat the news that a billionaire has lost 3/4s of all his or her money. My few bucks will still be my few bucks. They're billions may just become a few hundred thousand and few of us will cry for them.
3
What troubles me most is the reliance on past history, as if we've ever had a situation exactly like the one we're in today--a lethal virus, an interconnected world, and a stable genius. A perfect storm, no?
During the last crash, I accidentally got my neighbor's mail. Opening his Schwab statement, thinking it was mine, I discovered he had made, and lost, over 3 million. He had $60,000 left. I later found out that the loss of so much money caused a mental collapse.
I had a financial collapse of my own. I lost a third of my 401 and my job. Studying the situation, I noticed the world's most successful investors were also the world's oldest investors. Buy and hold, hold, hold. You could be the next Sumner Redstone or Sheldon Adelson.
Like bell bottom pants, the markets always come back. There and then, I resolved to keep 60% in fixed interest. Oh, the opportunities I missed. I felt like a fool. But during the last ten days or so, my self-esteem has made a comeback.
2
Because of the unprecedented rise in the Dow, boomers are over weighted in equities. They have gotten killed with no time to recover. This will put a crater in all future spending.
1
Paper losses don’t bother me. Don’t have money you need in the next 5 yrs in stocks or long term bonds (generally speaking).
6
Flawed analysis -- because the key reason stocks have fallen is the likely accurate perception that corporate earnings will also decline. Nonetheless, this is a bad time to bail out unless you really need money to live. We'll all have the learn to live for less.
9
The "get-rich-in-the-stock-market" scam started in the 80s, and the middle class fell for it. Invest your way to riches. This is legalized gambling where the house always wins. Unless it's one of trump's casinos.
Brokers et al make their money "trading" for you whether the market goes up or down. Look how obscenely wealthy they are.
Sure, some people have made a lot of money. But ask the average middle class "investor" how their "portfolios" have done over the past 20-30 years and I'll bet they are up maybe 10% once you factor in all the boom and bust.
If compounded-interest savings accounts with "real" interest we're still a thing, we'd probably have made a lot more.
Analysts have said the if trump took his dad's "gift" (aka money laundering) of $400 million over all those years and invested in a passbook savings account, he'd actually be a real billionaire today... way better than what his financial status actually is.
If you're older, waiting for the market to recover is a scary thing. Think off it this way: a stock that falls by 50% has to double just to get back to where it was. How many years will that take?
Unfortunately, most of us are trapped in this system.
9
I am not a stock market analyst but today is an unusual time in history. And by my way of thinking, unusual times call for unusual actions.
I think the stock market will continue to fall until most of the virus passes.
I pulled my money out about a year ago, but if I was invested now, I’d sell. Then, along about end of April, I’d reinvest back into the mix or whatever I had earlier.
Of course you can’t time the market. But I think it’s safe to bail now and reinvest.
That is, if you survive until end of April. Yet, another reason to sell.
1
So you’re trying to time the market?
4
@Just the Facts
You are right. People are going nuts and say that they aren't. Crazy times.
1
Why can’t you just say the truth? It brings opportunities to rich people.
4
I am not panicking. History is with me now like it was in 2008. The market will return. It is one of the market’s wonderful tendencies.
8
Remember Paul Ryan, Rand Paul, Trump, Mitch McConnel this is what they and other Republicans have proposed in the past and present to do away with Social Security and for everyone to open Wall Street accounts. I wonder anyone call Ryan should be able to find and ask him what he thinks of the wonderful market now. Anyway at 74 just since the 80's that wonderful capitalist instrument has crashed big time four times. Throw in the Saudi brain child second to Trump and his starting a war with Russia over oil and the destruction of the US oil industry and this market ain't coming back in my lifetime. I wonder has Trump called or had Kushner call the Prince and ask when what exactly is he doing. I doubt it to busy writing pardons for Flynn and other crook friends of his. I hear Pete Rose in the next several weeks is getting the Medal of Freedom. Convicted white collar crook, felon, Michael Millikien the leader of the crash of 1980;s come on down.
8
There is a basic fallacy in this article and readers would do well to heed it. The author writes,
"... if you look over the sweep of history, one lesson is clear: Earnings tend to rise over time, as the world economy grows."
This feeds into what I would call the Macroeconomic Delusion, which is that growth can continue forever.
That is simply not possible. We are beginning to understand why. Global warming will heat the earth up by 2100 by 3.7 to 4.8 degrees C over pre-industrial levels according to recent estimates. The world may continue heating after that.
And world population keeps increasing. It has doubled again since about 1972.
These trends simply cannot continue.
Global warming will exact a terrible price for too much growth. Death rates will rise to bring population back down to the earth's carrying capacity, which will be much lower as the equatorial regions become hotter and many parts of the tropics become uninhabitable.
We should have developed an economics for a steady-state planet earth, for a sustainable earth long ago.
Now, we confront the possibility of a decline in market values which will never be recovered. Yes, it may be that the market will recover one last time and we will see DOW 30,000. But we may also be confronting an endless Great Depression II as we are finally forced to accept the fact that there are limits to growth.
We called Paul Ehrlich a "fool" when he warned us to cut population growth in 1968.
But we were the fools.
14
Long term market wisdom is one thing in your thirties, and quite another in your sixties.
Remember when used to pay interest on savings?
sigh...
9
People are forced to take distributions in IRAs and 401Ks after the age of 70 1/2. If you inherit an IRA, you are forced to take the distribution before ten years, so selling is dictated by law, and a long-term view is harder to maintain. Changing laws and broken government promises underscore the random quality of results.
5
It's now age 72.
@Cynthia Stewart Thank you for the correction. The overall point still applies.
2
@Observer
Do understand that one doesn't take an RMD and burn it. Any or all of it can be immediately re-invested in exactly the same way as before, only not inside a tax-advantaged retirement account. Nothing is lost.
1
Consider a bucket strategy. In one bucket, set aside the money you will need for the next 5 years, in a money market (cash) account. In the other bucket, put the funds you are willing to risk, and buy the dips, with full knowledge that it could take 5 years for the money to come back to earlier levels.
5
The market is still above the December 2018 dip...
7
Of course, it is an opportunity for people who have priced out of the market for the past decade entry.
However, during a pandemic, when people are panicked over finding toilet paper, trying to keep their job and food on the table. it may be the last thing on their minds.
3
“Put those two together, and you’re earning an extra 3.8 percent a year for putting your money in stocks instead of bonds now compared with just three weeks ago.” - Can you please explain how this is calculated?
1
@Gaurav Mittal
Three weeks ago stock dividend = 3.1%, 10 year bond yield = 1.43%; stock ownership benefit relative to bonds = 3.1 - 1.43 = 1.67%
Last Thursday stock dividend = 4.2%, bond yield = 0.45%; stock ownership benefit = 4.2 - 0.45 = 3.75%, which the author rounded to 3.8%.
What's the difference between the person who invests in the stock market and the guy in Tennessee who hoarded sanitizer? The suit? Buy low, sell high, profit from a crisis. Wars and crises are ultimately good for gamblers.
4
Typical unhinged capitalist approach: benefit from anything.
Glad you can see the positive, and come up with such an insensitive title and article, at a time when millions will lose jobs and loved ones.
You could at least have waited out of decency.
8
@Lui Cartin
You are right. To truly buy into this article it takes the wisdom to see that down is up, and up is down. Just like Covid numbers.
2
Capitalism isn’t decent. It’s devoid of any emotion whatsoever. That’s what makes it so efficient. That’s also why we have governments to set rules so it doesn’t end up devouring itself.
4
Donald J Trump is a huge problem for Wall St...the markets see the clear display of unbelievable lying incompetence of this President...until this administration helps solve the health crisis nothing will save this market...we still aren’t testing people for this virus
9
@Mike V Great Point Mike, wide scale testing is absolutely paramount to allow employees to return safely to their jobs and for businesses to reopen, until a vaccine and/or drug cure is found.
Upon reading this article, I'm convinced the writer has a used car to sell with bad shocks, two flat tires, half of a steering wheel, and a missing engine. And boy howdy is that jalopy a good deal! Buy! Buy! Buy!
6
Could have saved many words by simply saying "Buy Low, Sell High".
4
@R. Zeyen
No one really knows how to do that.
No one.
3
@Brian Actually if you don't try to time the absolute low or the absolute high almost anyone who does a little research can do this. Have done it for years but if you get too greedy you can become a mess.
3
Always and forever: big money needs sucker retail investors who lack information to simply have faith that things will go up.
They don't always go up. Not in Detroit, and not on the NYSE as propped up by Saudi and Russian oligarchs. When the center of financial gravity moves to China, the NYSE will be the backwater that Paris and soon London are. The only question is whether that's now, or 10 years from now, or later.
The knee-jerk Federal Reserve exhausting all its ammo before the crisis really hits, in an apparent response to political pressure, makes it more likely sooner than later.
Plus, 10 days from now people won't be worried about their stock portfolio; they'll be wondering where their money-market funds went, and why they're not insured for those losses. People will be laid low by the credit markets that no one understands.
3
One comment for all those that believe the market will once again fly shortly I guess as soon as pigs do learn to fly. No mention if you are into oil and gas companies. With the contest between the dictator Putin and the Prince our ally in Saudi Arabia although they are both our allies I guess. Billions of share price lost, fracters going belly up, banks on the hook for hundreds of billions in bad loans to the oil and gas industry. The price of oil and natural gas are not coming back and yes, wow cheap gas, but hundreds of thousands of jobs loss and share prices that is the flip side. And always forgotten is the spinoff down to restaurants, grocery, housing. This is not just a small boom and bust.
3
Keep calm, don't panic etc is always the conventional wisdom. I don't get it. We saw this coming and the "wise" thing to do is behave like a rabbit in the headlights. I've been here before and this time I "panicked"and I'm glad I did. Took some loss and turned my meager pennys into hard cash. As I see it, this is only common sense.
But we will get through this, even without meaningful international cooperation. The EU has been a toothless tiger, this is China's Chernobyl (they tried to cover it up), Washington is led by a president with no head on his shoulders.
1
Think of the words about stock prices attributed to J. P. Morgan: "They will fluctuate". And then, in a falling market, grind the teeth and invest in the paper that you believe has a good chance of appreciating in value. That way you can pat yourself on the back, if you are right, or have only yourself to blame, if you are wrong.
Volatility = opportunity.
In time, this crisis will pass, whether a few months or a year and a half . . . . and an emotionally charged market that overshoots to the downside will come roaring back at the first sign of optimism.
Fear & Greed. Patient people are going to make a lot of money.
6
If I live through this epidemic, the market will eventually go up again. If I don't, who cares?
8
At a certain point I tire of these articles encouraging me to keep all my money in the stock market regardless of these bear markets. Not that I don’t do that. It’s exactly what I did in 2008, but it took something like 3-4 years for my funds to recover back to the level they’d been at in 2008. What that essentially means is that I’ll be working for 3-4 years longer than what I had initially planned, in order to have the same amount of money available to retire on.
So now I guess I can tack on another 3-5 years. Not sure if the people giving this advice realize, but biological lifespan is not infinite. Working 5-10 years or so longer than you initially planned to means that you may simply die before you actually have enough money to retire on. Or, alternatively, you’ll be so old when you retire that the only activity you’ll be able to engage in will be crossword puzzles. Better to die first and just pass the money on to your kids.
7
People are urging you to keep in the portion that is for the long term. Over a 5 yr market cycle. You won’t need ALL your funds, surely, within the first few years of retirement.
1
I feel like a wildfire is happening
the forest will be burned but afterwards the soil will be fertile for growth?
Easy for me to say though bc I'm young..
3
This is magnitudes unprecedented in terms of the modern ear of the stock market - meaning so many are dependent on it in terms of retirement. You don't shut down the entire globe and then blithely write an article like this. Or, rather, you shouldn't be allowed to.
No one knows the bottom to this. But it's clear we are only on the precipice. Things haven't even started to get bad here. There's a huge distance to go down. This event and the huge repercussions will very likely re-shape stock market charts for a long time to come. This will make the 2008 meltdown look like a walk in the park.
2
@Matthew Yes! There is a larger percentage of the population who are in retirement age or near to it. How many people are in the age group required to take distributions from the IRAs and 401Ks?
2
There are a lot of myths about low-fee index funds as a good choice for long term investors. The most immediate is that they carry a lot of trading and other restrictions that people need to be aware of. They are completely unsuited to current market trends and safe retirement planning unless you want a bare bones existence, at least based on my 7-year experience at Fidelity.
For one thing the managed market accounts at Fidelity only trade once a day. The investments are in mediocre mutual funds that perform poorly compared to rest of market.
At Fidelity, you have to place your order by noon for a 4pm trade, meaning You do not have ready access to your own money. The Fidelity staff is poorly trained, hard to access and provides misinformation. For years NYT and other investment writers have advocated for them for 401ks and IRAs of non financial experts based on misleading information. Readers need to be informed of the limitations of these investments as part of core holdings.
1
So why do you stay with Fidelity? There are lots of trading platforms out there.
2
My husband and I agreed we'd be willing to lose 100K if it meant Trump was gone and it wiped out the GOP for at least decade. Yeah. This is what it's come to.
14
@Julie R Well, I’ve already lost more than that. But you are correct about inept T.
4
@Julie R
It’s a small price to pay.
5
If you can't afford to loose it, you shouldn't be in the "market". If your retirement plan requires 7% per year income from the "market", you shouldn't retire.
2
Yet another journalist peddling conventional wisdom pabulum about the miracles of "the market".
Irwin's entreaties reveal a faith-based religiosity towards his secular church - "the market" - as if it were a rational place for millions of Americans to place their hard earned savings, instead of a multi-level Ponzi scheme that cannot be relied upon to provide the security most retirees are seeking.
His superficial advice ignores not only the current crisis, but the longer term trends in climate, debt, globalization, high-speed trading, deregulation, decline in number of public companies, automation, poor trade policy, authoritarian and nationalistic trends here and abroad, and increasing wealth gaps - to name just a few of the trends and threats that are making the 21st century very different from the 20th.
I ask readers to consider the possibility that the 20th century was an anomaly in the US - economically, socially, politically - and that past results are no predictor or guarantor of the future.
There is no reason - beyond blind faith - to continue to tell readers as Irwin does that "markets always go up", and that they should continue to throw good money after bad.
"The market" is a house of cards - no more stable or rational than the world at large. And no, happy endings are not guaranteed.
4
All investors and savers should read certain things at some time in their financial "careers":
"Bogle on Mutual Funds"
The latest annual letter from Warren Buffet of Berkshire Hathaway.
Perhaps a third series would be the column from Suze Orman from the AARP magazine over the years.
Another item might be the first third or so of Taleb's "The Black Swan".
The point of this is discipline and understanding. We who have gone through 1987, 2000, and 2006-8 are prepared, I hope.
1
@Jeff
I like “Bogle on Mutual Funds.” My biggest knock is that a few of the sports analogies are weak.
I have a first edition containing a personal note from the author. It has a very special place in my library.
While there are good explanations for laypeople to understand the market in this article, to say that getting back into the market too late is a reason to stay in a failing market is terrible advice. During a market crash, it is more than reasonable to move equity investments (stocks) to safer securities like bond and money market instruments. While major investors are taking profits and cutting losses, average investors are being told to wait it out and hope the market rebounds enough for their losses to be recouped. No. The average investor should be told to look at alternate investment avenues and to keep an eye on the market to determine when to jump back in. There is a lot of panic out there. Giving bad advice to assuage panic is not a good idea.
3
@rmward1 Who knows 'when to jump back in'? I want that person as my financial advisor. Timing markets is extremely hard, especially for all the average Joes who have been herded into 401Ks since the 80s.
For millions like myself we've always been excluded from the markets simply because we don't have enough money or are restricted because of disability payments from government in the forms of social security SSI accounts, etc., which limit the amount of money we can even possess at any given time..
I wanted to invest, but then there's the fine print that we can lose our basic social security income if we get any kind of windfall over a certain amount.
I am the beneficiary of my now deceased father's home. He died a week ago and so I'm worried that if the remaining value of his house is too high I may lose my disability account. I know the equity in the house isn't much, around $30,000 and possibly much less depending on what happens to the housing market in the short term not to mention any outstanding debts he had. The bottom line is I'm very likely stuck with just SSI with little to no chance to ever break out of the poverty cycle. Part of me really wants the windfall, but if I lose my SSI $30,000 won't last long. There are millions in similar straights. Many of us can't even work to earn more than a few bucks a year or risk even deeper poverty with no income.
Before i qualified (or applied) for SSI I had zero income and unable to work at all. That little $730 a month for people like me can feel like all the money in the world. It absolutely excludes us from even contemplating taking risks with markets.
7
I believe that we must look at the current episode as a great storm that is sweeping the earth. This storm has caused all of us to hunker down, to separate, to cease most business activity and most of all drive fear into all of us because we have never experienced anything like it. But we do know a few things;First, most of us will physically survive; second many people will die; third we will under proper leadership be prepared for the next time this happens, fourth this storm will pass and fifth and most importantly we will rebuilt. We always rebuild. It is in our human nature to survive and to move on. Just look back 100 or 200 years ago and see what we have done to present. Given what the medical experts have told us this storm should pass within the next few months and from that point we can start to move forward. China has already has already had significant reduction in new cases and it has been about 2 months since they disclosed the existence of the virus. We will, within the next month, probably reach the zenith of the virus in terms of new cases. From that point we should be hear "good news" about reductions. Once that starts to kick in the market will start to "anticipate" a sense of optimism and we should then see a change of direction. I am 75 years old. I own a business and I go to work everyday. I have many employees. We will meet and deal with this storm. Try to remain calm and try to be as logical as possible.
16
I don't think we'll see the recent highs again for many years, and here's why:
During the last 2 crashes, in 2000 and 2008, boomers still made up the bulk of workers. They had the benefit of being in 2 long bull markets prior to those crashes happening, and a large cohort still had time before retirement to invest again once the smoke had cleared.
Now, the youngest boomers are 56 years old. There simply are less of them with the time and inclination to invest for the long term now.
Millennials have time but don't have the same money, for several reasons such as student debt and the fact that covering basic living expenses takes up a larger portion of income now than it did for the boomers.
Additionally, "Millennials have benefited the least from the economic recovery following the Great Recession, as average incomes for this generation have fallen at twice the general adult population's total drop and are likely to be on a path toward lower incomes for at least another decade. According to a Bloomberg L.P., "Three and a half years after the worst recession since the Great Depression, the earnings and employment gap between those in the under-35 population and their parents and grandparents threatens to unravel the American dream of each generation doing better than the last. The nation's younger workers have benefited least from an economic recovery that has been the most uneven in recent history."
12
As a general primer on what stocks really are, and why they have value, this article is excellent. If you don't understand that you're buying a piece of a company's earnings when you buy stock, you shouldn't be investing.
However, it purposefully ignores why the market is tanking. Smart money figured out early that earnings will tank this year. Stock prices followed. Just look at school closings, travel restrictions, and empty shops of the cities hardest hit. That's what we can expect nationwide.
The article claims the earnings yield went up on stocks as the prices dropped. This isn't so because it's future earnings that determine the yield, and it looks likely those dropped as well.
7
Easy to be philosophical or even insouciant if you have two to five years to wait for the value of your stocks to return. What if you are 78 years old and don’t really have other savings and need money now? Sounds a little different, right? Not everybody fits your profile of an investor. Some of us are people who had just a little bit of extra money and set it aside into what supposed to be safe stocks - banks. And now we are well and truly up the creek. That last phrase is a polite substitution for what I would really like to write.
20
@Donna If you are 78, you should not have an large part of your net worth in stocks. Not to be insouciant, but one must plan one’s portfolio based on needs and age.
10
@Donna What 78 year old ONLY have money invested in the market, but $0 in a savings account? That literally doesn't make any sense. There is no such thing as a "safe stock." Stocks are inherently a risk. The only thing that's certain is savings. If you know you'll need the money, then don't go playing a game with it. Whoever told you to put your money in a "safe-stock" instead of your savings account should be fired.
3
@Lexi
I didn't say that I had no cash in a savings account. The tone of your comment and of the comment by Vic displays the sort of coldness and snideness one expects from our so-called neighbors to the south. My point was that this article is written for wealthy investors who don't face significant financial pressures. Or if they do face such pressures, they - or you as the case may be - can simply sell their vacation home(s).
2
So I lost a lot of money in the 2000 crash, and the 2007 crash -- so much so that I have still been carrying forward loses.
This time, I was determined to be smarter!
Reading what was happening in China in mid-February, I thought we would probably end up in a recession just based on China completely putting on the brakes, given how intertwined our economies are and how dependent we still are on China.
So I started going into cash in mid-February. With the cash, I purchased put options (put options are bets that the stock will go down; unlike shorting, you don't have unlimited risk).
First, I bought put options on the cruise lines, then the casinos, then the restaurants, amusement parks, then the oil and gas companies, and finally the banks. I researched the weakest players in those sectors, and purchased their put options.
And so far, for the first time, I managed to figure out how to do quite well in a bear market, delivering outsized gains.
But that was only possible because I saw the downturn coming. I couldn't understand why when Apple announced on February 16, that it wouldn't meet its earnings targets, why the market continued to rise to all all time high four days later! That made no sense to me. And then everything quickly collapsed.
22
@G Hmm, I started in 2000, so I came in right and the paper price on my investments did drop around 2007 at which time I kept buying, so in a few years, it came back and I believe my average rate of return over 20 years is 65% until this crisis hit (I'm in eight index funds tracking different indices and ~ half are doing better than that).
This time I am hoping it stays low so I can keep buying more. The longer the market is, the more I can DCA every two weeks.
You've only lost or gained money if you buy or sell. I am 47 now and I never plan to retire but even if I did at 67 that's 20 years from now and these funds I put in now I won't be taking out for a lot longer.
2
@G Very,very wise. ,but there are many storm clouds on the world's horizon, read "SPACE NEEDLE'S" LETTER above in this articles comments section. Personally I think, the best investment is a7 acre farm property. with a good water supply [7 acres deemed to be large enough for self sufficiency].
How do all these wild swings happen up 6% one day down 9% the next? And why do all these experts keep telling us small folk to look at the long view hold steady? Seems to me that 20 or 30% of average Joe’s money is going somewhere but not to other average Joes. The insiders, the short sellers, the computer programs know how to take our money. And since we have no other way to prepare for the future than our 401k we’re always there for them ripe for the picking. Anyone could see this coming yet none of these advisors recommended getting out of stocks until the crash passed because they want our money there for themselves. I don’t care how you try to make it look like an opportunity, losing 25% of your savings in 2 weeks is a disaster with no guarantee of recovery anytime soon. Getting out of stocks when the clouds were gathering would give you a lot better opportunity to still have most of that 25% available to get back in when things begin to recover. That’s simple math and logic anyone can understand. But we’re supposed to feel good now because our shriveled savings are theoretically going to earn a few more percent. I guess because now we have less money what it can earn is relatively a higher percent of what we have left? Well think how great it will be when we’ve lost another quarter of our money!
7
@Wk In the very long term, the best investment of any kind ever has been stocks. I think in terms of 40 year windows, it's unparalleled. There is one 30 year window where you don't make anything (but you could with DCA).
It depends on what you invest in and how you invest. Index funds, where you own the whole market, is key to this as is DCA (as a matter of necessity, not of choice).
1
@Wk It sounds like you don't have the stomach for investing. If you can't have patience, then just put your money in a savings account where you won't "lose" your money. You haven't LOST a quarter of your money unless you actually sell. Which you did, you bought high and sold low....which is literally says to me you don't understand investing. Do yourself a favor, next time, don't even enter the markets.
1
But in a savings account you will lose purchasing power over the years. So, if possible, best to have a mix of investments if only as a hedge to inflation. And even low inflation takes quite a toll over time.
I learned my lesson in 2008. After a six figure drop in our 401(K)'s and IRAs we made the decision to never let it happen again. My wife and I found that we couldn't afford retirement about 3 days after we closed on our retirement home.
So, we put off retirement until we had recovered our loss and a little more. Then we retired and set markers on our investments that told us when to sell. As we watched our unrealized gain start to fall, the triggers in our investments began to fire in mid February. We got into a completely cash position on Feb 28.
Given current interest rates, we'll probably be in an all cash position for another 5 years.
Unless and until the exchanges and the government set rules to level the playing field, I'm out of the stock market for good.
18
@William
Then you will miss the run-up which will almost certainly occur. If it *never* occurs it will be because everything has collapsed, and our money will be worthless as well as our stocks.
2
The stock market is going down. Someday it will inevitably go up again, so if you buy stocks now, you'll be getting them at a rock-bottom price. "Buy low, sell high" is a famous investment truism. If you have money spare, this may be the best chance you'll have in your life to buy low.
30
This is a buying opportunity, but in order to take advantage of a buying opportunity, you need cash. IMHO, whenever the stock market is in record territory, it's a good idea to have at least half of your portfolio in cash so you can take advantage of buying opportunities. Personally, I've been 100% cash for over a year waiting for a crash, but that's kind of risky (except that I was keeping up with inflation so the risk was only relative to what I could have been making on paper), because there's no telling how high things will go nor how long good times will last. But in my lifetime, collapses keep happening and you can make money by buying when the market is down and holding until the market is back to record territory, which could be years from now. You don't really need to be perfect in your timing, but you do need to be patient.
20
For readers like this one who'd rather think about anything else but money, and especially just how much money they have, keeping it in cash and guaranteed investments, though that means foregoing the opportunity to make an extra two or three percent a year over the long haul, seems like a rare bargain.
5
@Leigh The US has more lawyers and so called financial advisers than any country in the world. Pattern there yes, lots of stupid rubes to fleece by the snake oil salesman. Check the last list of who Trump pardoned Michael Millken and other remember junk bonds, why he became and still is a billiionaire. The key to get the rubes to buy your worthless paper. America at 74 I have discovered loves fraudsters, con men and hey a man at President bankrupt five times why even a whole football league in the early 80's. Reason the NFL never let him buy a team, at least they know. Crash just from the 80's Savings and Loans, Dot com, Housing 08 and 20, yes put your money in the market hey, if you don't the NYT and Wall Street Journal will be full of Christmas stories of the poor stock brokers who won't be able to buy their kids shoes because they did not get their bonuses. Boo Hoo. In the 1800's it was the traveling snake oil salesman, now the stock broker and financial adviser.
As hinted at in the article, price/earnings was in the thin clouds territory until recently. Take into account a) temporarily lowered earnings due to the normal activity of producing and consuming being slowed for a few months and b) some overly leveraged or poorly managed companies going out of business entirely during the dip (as they should, recessions serve a purpose). Thus, not everything in the market has suddenly become a screaming bargain.
Overall, the economy will be back to normal in anything from a few months to a year and half, and a few more jobs will return to the USA. Some previously inflated asset values will return to their actual value rather than their January peak, and that’s not a bad thing.
7
"It’s also probably a mistake, assuming the question involves long-term savings."
How do I know your definition of long-term is anything like my definition of long-term?
10
@polymath Yeah exactly my question. What is long-term and how do I know what to do about it? This didn't really answer that.
I am in my late sixties.
Two years ago my Mom died and left me some inheritance.
Everyone insisted I invest it
Having lost everything in the last recession,
I was very apprehensive.
The advisor I chose selected a portfolio that was lower risk.
It was doing okay until the last two weeks.
I am tired of hearing "It will come back in time."
At my age, even working full time, I don't have time.
I don't buy green bananas.
37
@RABNDE. Then maybe you should just put in under a mattress. All investments that generate a return above safe-haven (US Treasuries and the like) have some degree of risk. If some degree of risk is not your thing, then the market isn’t your thing.
14
@RABNDE
Investing heavily in the stock market so close to retirement is never advisable. The stock market is a long game.
I'm not giving financial advise, I am mentioning that each person has to assess their own risk level. That is, how much can they afford to gamble with at this point in their life.
For most people close to retirement, it is less than 25%. while the majority goes into high yield savings or CDs or bonds, etc.
Good luck figuring out a solid strategy that works for you. The market will bounce back this year.
3
The market is up from 2 years ago
3
Two points not made in the column, one that supports the author's argument and the other that counters it: (1) Many people who are still working have a target retirement date, and assume, although perhaps not consciously, that on that day they will cash in all their retirement savings. In fact they will probably only begin to draw down those savings, by as little as 4% a year. So they have much longer than they realize to recover from paper losses like those we recently endured. (2) "Buying the dips," as some advisers recommend (and as Mr. Irwin seems to recommend), means being able to time the market accurately, which is almost impossible to do. More importantly, it can't be done at all if you are fully invested and don't have idle cash to invest.
22
@Fred To your second point, I've never read any credible source which recommended being "fully invested." That's not smart, no matter how you look at it. Keeping cash on hand is the only way I know to be able to cover emergency expenses, and those always come up. As far as timing, I don't watch the market closely, but it's pretty clear from the headlines when there's a major dip. I find that even a passive investor like myself can pick up on the big drops and get some benefit. Just my 2 cents (which I'll probably put in the market when the corona scare dies down a bit)
5
@Fred - The alternative to buying the dips is selling on strength. I have a target figure I keep in the market; when the current value exceeds my risk tolerance, I "take profits" and reinvest these in a stable, if lower yielding vehicle. My account appreciates less quickly, but it doesn't go down very fast either. (I am down about 2.5% over the past week or so.)
I am retired, and have been doing this for 10-15 years. My balance is stable, even after several years of RMDs.
2
@jay
You are quite right about keeping a cash reserve, but if it's for emergencies then it shouldn't, by definition, be used to buy cheap stocks in a bear market.
I have 98% of my money in stock index funds and a fat dividend payment coming next week. I’m cheering for lower stock prices, because the lower they go, the more shares my dividend payment will buy.
14
@Mark Seriously??? What if the stocks go really low, and the recovery doesn't happen quite the way it has hsitorically because we have an unprecedented pandemic (at least in 102 years)? Dividends? Come on now.
@AP Man You mean if the world never recovers...ever? We all just forever go on living inside our homes indefinitely? Then ok. But think about how ridiculous that sounds. The world will come back from this. China literally already is. Sure, 2020 will have a huge losses, but that doesn't mean everything is doomed for all of eternity.
2
Eventually, this virus will pass. Maybe it runs its course. Maybe we wait for a vaccine. Maybe many people, maybe millions worldwide, die. But in the long run, big picture, this is just a blip. (Already, if you look at long-term charts, the Lehman shock is barely noticeable.) Things will return to normal - in Asia, that’s already beginning. Nobody knows where the market bottom will be, but I think this represents a great buying opportunity, just like the Lehman shock was.
Or not. Maybe this changes everything, society never recovers, half the world dies and it’s perpetual anarchy. In which case, your savings and the stock market will be the least of your worries.
So either way, don’t worry!
96
@Bill in Yokohama Not sure it's just about the recovery of the market. If jobs are lost and businesses close then economies will shrink. Already we are due for shrinkage because the millennials and beyond have less purchase power. They have less income, and higher debt. This is not going to be a our last health crisis either. Big companies are going to have to pay the piper for their lack of doing so before (taxes). Otherwise humanity will just eat itself alive with climate change and new pandemics and wars over dwindling resources. That's in the USA other emerging economies might do better but for how long with climate change???
2
@Bill in Yokohama
That's not what "anarchy" is. Just sayin'. Most people don't understand it and use the term as a catch-all for chaos and disorder. This is not anarchy.
2
@Mark B
Cheers Mark.
as far as my limited vision reaches, i see that the shares i follow are still very high in comparison with a year or so ago. up down up down. the real indication one is losing monry is when the share youy have bought falls below the price you paid for it, n'est ce pas?
12
Dollar cost averaging, baby. Saddle up and ride it out.
25
@Now What got that right! Bought 20k shares ACB two months ago @ @2.95/share. Bought another 20k shares yesterday at $.79/share. The stock market is having a sale and your invited!
Baby steps, diversification, and regression to the mean, are the foundations of a program that has worked for me ever since I retired. My stock portfolio is almost all in index funds: that's diversification. When the market rises, I transfer small amounts from time to time out of equities into bonds or a money market; and when the market falls, I transfer small amounts back into equities. Those are the baby steps. And regression to the mean is the expectation that guides those steps.
13
Forget about market timing. Look at your situation. Anything you need in the next 5 years - needs to be cash or very short term bonds. Needs 5-10 years out - have a target plan (=+ 5-10 years) that holds some stocks and bonds. Beyond 10 years - mostly stocks via mutual funds or ETFs. Its not hard. Look from the perspective that you need a portfolio that will keep you calm if the market goes up 40% or down 40%. Also keep in mind most serious bear markets take 6-8 years to fully recover.
5
Mr Irwin speaks like a bank economist. The main objective of these people is to "hold the hand" of customers during (sharp) market declines. The banks and investment dealers market makers push the hype to increase public participation on the way up but absolutely despise it on the way down. That's why declines are so often sharp. Traders do not want to make "efficient" markets on the downside, but rather move prices so as to avoid purchasing stocks from retail and institutional investors as much as possible. They want to paralyze people from acting, until they are ready, based on their superior information flow, to move prices up again.
This market had been on fumes for a long time and was at the mercy of a powerful catalyst to unravel. It's hard to think of a bigger one than a global pandemic. The president (who seems to care way more about the market than Americans' health) has been able to move the market up through corporate friendly tax policies and moral suasion, but no longer. The virus doesn't care.
I don't have a crystal ball but but even after the declines, the market is still expensive on an historical basis. The Schiller P/E ratio for the S&P 500 is still above 20. With a near shut down of the economy coming, the consequences for earnings, and the potential for countless fatalities, I would most certainly take advantage of any upside market reaction, stemming from Fed moves or the president's "jawboning", and sell right into it.
24
Reading the many "experts" telling me not to panic and things will recover don't comfort me. My 401K is in the MOST conservative, target date fund possible. I'm 75 years old, still working by choice, but want to retire this year. Losing 14% of this money scares me. And it could get worse. I realize it makes no sense to put the thing in money market now as there's no chance to recoup the downturn. But I'm very worried.
23
If you were going to need cash over the next few years, that money shouldn’t have been in stocks.
Simple as that.
2
@Sylvia
An investor loses no money unless she sells in a market decline like this. You are working way beyond full benefit retirement age for Social Security, so I hope you have collected benefits without penalty these past five years. Worry is natural. It looks like your conservative fund lost far less than the stock indexes. That means it will take far less time for your conservative investment to recover losses. What I do in times like these is to look to see how long it took my Vanguard balanced fund investments to recover in the crash of 2008. It took about a year or so because of the 60 percent stocks and 40 percent bonds. A 100 percent stock fund is too risky for me. It took the all-stock indexes many years to recover. A mix of stock and bonds in a mutual fund is the right mix for me. Be brave and do nothing. Enjoy retirement.
1
@Sylvia I feel bad saying this, but perhaps is will help others approaching retirement. You should have begun moving assets to cash/bonds 3 or 4 years ago so that volatility in the market would not hurt you.
2
One of the prime human traits almost all experts ignore is previous experience. Once a small investor has been clobbered by a market decline, the experience tells her/him to be wary. Since no one can time the market, the tried and (until now) true advice to stay calm and continue to invest in a balanced way is psychologically almost impossible to follow.
Only a tiny fraction of investors are individuals. The day traders and funds constitute the vast bulk of market users. Vast swings are caused by algorithms .
Ultimately, this vast Ponzi schemed based on the impossible foundation of eternal expansion will come to its final crash. What should be of concern, is whether this is it.
32
@Reality So true, like each time the market crashes look at this one. This was not the virus, it is the excuse employed. As you correctly state it has been on fumes for at least a year. Every time it looks like the consumer is taped out Trump demands and the FED jumps and cuts the interest rate to keep it going. Eventually when you are at the point like now of taking a cash advance from one one credit card to make the min. on another. Stocks have been overvalued by so much by goodness Boeing loses $18 billion and the MAX will never fly the share price goes up, oh, really based on what, oh, brokers have millions of shares to unload. It has been a PONZI and as for those this will pass and the market and economy will come roaring back what planet to they live on. Most Americans have no sick days so stay at home for two weeks without pay or medical insurance lets see how that pays out with credit cards, mortgages. Do love someone saying great time to buy a house, how stupid. Lets see more than likely the economy is not coming back for several years yes, buy a house so it can be repossessed. Hey, buy a cottage and a several cars and trucks. watch those wonderful economists in a few months we be saying what this is the Second Great Depression. where the good times were based on smoke and mirrors and the house build on quicksand.
2
Brokers and columnists advise holding on to stocks for the long run. This strikes me as awful advice. When there is good evidence that markets are about to tank, I sell. Then I buy back at a lower price. Sure, there is a danger of guessing wrong, but when people's retirement savings are invested in 401Ks and rollover IRAs, it seems sensible to act, rather than get hit by the train. I suspect brokers sell their own holding when they see a drop coming.
No one's retirement should depend on a 401k and the stock market. Social security should be expanded provide a real wage-based retirement plan like employers used to provide. Such a plan would be portable as one changes jobs. The money, from employers and employees, that currently goes into funding 401k's could be redirected into such a program.
47
@ShenBowen
I agree. If your stock is in an IRA, and if you are lucky enough to pay not fees to sell, then last week, why wouldn't you sell? There is not tax consequence and no cost. It took 18 months for the market to hit bottom, lose 50% during the recession. It took 4 years for the market to hit bottom, lose 90%, in the depression. How long will it take for the current market to hit bottom? My only risk is that the market does not continue to drop. Now I have lost 12% and am all in cash and a few bonds ETFs. Had I listened to the experts in the recession and "not panicked" I would have lost 20% more than I did. I sometimes wonder if the big guys want us little guys to hold on to falling stocks so we do not make things worse by selling.
5
“When you buy a share of stock, you are buying a claim on an infinitesimal portion of the profits of that company for the rest of time. When you buy a broad index mutual fund or E.T.F., you are essentially buying a share of the future profits of all major corporations.” You’re killing me. Here is a better mental trick - buy stuff when it’s cheap, only sell when it’s expensive. Stuff like stocks. Don’t buy when it’s expensive and sell when it’s cheap, which is what people do, thinking they are avoiding losses, when they are actually locking into losses.
5
This is a wonderful opportunity for day traders; these huge fluctuations give so many opportunities to make money. Of course we need folk to keep the faith and keep their money in the market, otherwise this game won't work so well. Which is why we have articles like this.
In a couple of weeks, when people are dying in the street, the market will really tank. If you hang on to your stocks now you're riding the anchor with the busted chain down to the bottom. Unless you're a day trader who can get in and out quickly, you really don't want to in this neighborhood.
12
@Steve
Today, several thousand people in the U.S. died of cardiovascular disease. Yet 42% of Americans remain obese and we still love our fast food.
25
@James - Even more died from auto crashes yet we would never think of imposing a travel ban.
3
@James
Well why not write a letter to Trump to get him to set a good example?
There's a counterexample that throws this line of thinking into doubt: cryptocurrencies. Not representing shares of companies, they have no earnings, so by this logic they should have no more nor less value than cash. And yet they rocket up and down like heavily leveraged shares.
Are cryptocurrency investors being irrational? I'd argue no: if you think people will pay more for an asset tomorrow, even if you don't believe it has any underlying value, then it's rational to buy it today and sell it tomorrow. A lot of participants making those same sorts of calculations makes a market. The net present value of expected future earnings need not have anything to do with it.
4
@M.
Cryptocurrencies don't make, do, or sell anything, earning money like shares of companies. They are a speculative asset, like gold. Except they are not like gold - Bitcoin doesn't have thousands of years of history as a tangible and rare store of value, material for coveted jewelry, and monetary equivalent stored by central banks, like gold does.
Cryptocurrencies aren't backed by governments which are subject to political pressures like elections or even revolutions. If Bitcoin goes to zero, who are you going to sue, prosecute, or vote out? "Satoshi Nakamoto?" What is his (or her) real name?
Cryptocurrencies have dropped more than the stock market or gold since the coronavirus epidemic began. That's because of the fear that in a deflationary situation, there's no room for risk.
Is there any proof that cryptocurrencies like Bitcoin, which are not backed by real assets or enterprise, aren't a brilliant Ponzi scheme?
Bitcoin and similar coins are scams, brilliantly designed through their blockchain, power-consuming "mining," anonymity, and anti-state ideology to exploit the psychological biases, fears, and desires of libertarian techies.
1
my broker retired about 3 minutes before the last crash and the person he'd assigned me to never materialized. i was left with next to nothing to invest/reinvest.
i have a very small spider gold left, and asked my current guy if i should sell that and take some stocks.
he said no.
2
Irwin’s earnings per share math assumes that the price of shares has dropped but that the value of the earnings has not. More future earnings at a cheaper price! Maybe. But if future earnings are lower, then it’s a question of both the numerator AND the denominator moving at the same time — and which one has moved and will move more? We actually don’t know.
The thrust of this article is still probably accurate. But its use of very simplistic shorthand to try to persuade the reader to do the ‘right thing’ is a bit facile.
15
If you have the opportunity, convert your traditional IRAs to Roths on these dips/plunges. Pay taxes now (on the lowered value) and enjoy TAX FREE growth for the remainder of your life.
25
@shh
This is best age dependent, +59.5, have established residence in a state without income taxes, and have $$ in cash to stay in the lowest tax bracket possible.
Age 70’s investor couple have gone to cash, will ride this out mostly with Treasury bond ladders until S&P 500 index rises back to its 100-day moving average and maintains or exceeds that level for a month or so, then back into dividend-paying stocks and ETF’s and dividend-reinvesting mutual funds. Our investing time horizon is too near to risk just holding on while there’s no Coronavirus vaccine in sight, a recession likely soon, and an idiotic sociopath in the White House.
66
Hey Neil ....what about those already in retirement. Those, like me, who are drawing monthly income while stocks plummet, locking in losses. Those like me who need a certain risk tolerance to stay above principal. With all the advice that I read from the experts ......none ever seem to address the "already" retiree.
30
Right. We don’t have the luxury of a long term view. At this point the market may not come back soon enough to make up the loss. And what goes down doesn’t necessarily go up.
16
@Joe
The wise thing to do is to keep 1 year of expenses in cash or cash equivalent (CD ladder) in retirement. That way you are not selling in a dip or pothole to make your monthly expenses. Just a simple idea, but one that allows for easier sleep at night too.
26
@James exactly. I’m retired, and I just switched my monthly draw to pull from a cash account. Fortunately I can do this for several months if needed.
Mr. Irwin, in your article you sate that in the use of profits “ some will be held by the company or are used to buy back shares, which materializes in the form of a higher stock price.”. There is no guarantee or even correlation that buying back shares result in a higher stick price. Please examine the results of the re-purchase programs of IBM or Bed Bath and Beyond. billions of dollars of shareholder wealth have been destroyed since share buybacks were made at prices significantly higher than current market prices. The only two ways in which profits of a company are realized by shareholders is through receipt of dividends or by selling appreciated stock and realizing capital gains. Reinvestment to drive growth may or may not generate profits and therefore stock price increases. Stock buybacks will decrease the number of shares outstanding but if profitability of the company is dropping faster, the share price will decline nevertheless. So please be the first journalist to understand corporate finance and retire the canard that share buybacks result in and guarantee rising stock prices. Thank you.
12
Faced with this unconscionable president and Republican Party running the show, the advice should be, "Buckle up, Buttercup."
17
It’s easy not to be afraid when your not planning to retire in a few years. Your earnings explanation applies to investments made today . What about the losses you already incurred. Based on experience, it will take at least 10 years to get back those losses, even buying at today’s bargain prices. And that’s assuming things don’t get worse.
17
@Steve B It will NOT take 10 years to recover. In 2008 the market dropped 50% and recovered in 3 years.
1
Anyone who can and isn't already should let stock and fund dividends automatically re invest, if still in the market.
8
I have a very small IRA and this market drop may clean me out. I can afford to lose all that money because I also have a pension from New York State. I remember George W. Bush telling people that the long-term prognosis for the stock market was excellent. He was correct, but it took years for that to materialize. What are the stories of people who suffered through those years?
6
@Betsy S - The market went nowhere during G.W.Bush.
1
I remember my first training session at EF Hutton many years ago. A Managing Director asked us if we would like to see stocks go up or down from there. Pretty much everyone said “up;” he corrected us that at our age (mostly 20’s and 30’s) that we should want to see stocks go down so we could buy more shares for the long term!
9
Check S and P chart. Valuation in 1980 lower than 1929. If a portfolio was bought and sold in those years
a loss would have been incurred. Of course, dividends would have been paid each year.
I think it may have been Keynes who said, “ down markets make investors out of speculators”.
6
A market like this makes me wish I was younger (I'm retired). I told a 41 year old friend that this market is, in fact, good news for her. It is her opportunity to buy low as she continues to regularly put savings into her account. She is then buying low with a 25-30 year timeline before she needs the money.
"Dollar cost averaging," which allows an investor to buy more shares when they are cheap and fewer when they are more expensive, only works when the investor stays in and keeps investing through the troughs.
The thing to be wondering when the market takes a serious dip is not "should I get out," but rather "how can I invest more." The market will come back; it always does, but it sometimes takes a long time - a decade even. Hence the understanding that such investment is for the long term.
74
@Anne-Marie Hislop That assumes that you survive to do so. Millions of Americans could die in this pandemic, and tens of millions become seriously ill.
Can't celebrate falling shareprices when the decline is instigated by a national slowly unfolding human tragedy.
23
@Anne-Marie Hislop
Warren Buffett gave the same advice in 2008. Best time to buy is when people are buying toilet paper in 100-pack size. When most people are acting like rats on a sinking boat, the smart ones are buying up their possessions on the cheap. Worked for stocks in 2008 and will work again this month. Give the housing market about a year to dip given that AirBnB investors and many vacation home landlords are going to be behind on mortgages. With Fed rates at 0%, mortgages of 2.5% or less will be on the horizon. Prime time to buy that retirement condo or home in FL or AZ when the fire sales commence.
14
@Sean
Wow, you really haven't done the math on even the most dire mortality rates or how quickly the vast majority of people recover. I predict we will be sitting at the beach on July 4 like every other year.
5
Since the column mentions Dr. Shiller it might be pointed out that the (CAPE Ratio), Shiller PE Ratio is currently at 25.71 and the mean value is 16.70. So one might conclude that even after Friday's meteoric rise the stock market is still priced at a speculative level, if Robert Shiller, the author of Irrational Exuberance, is solid with his data.
25
@john sheridan
In about 1997 Warren Buffet* when the DOW was at 9000 said there was nothing in it worth buying until it hit 5000. It never did. He later said the stock market is broken (in other words, it doesn't function the way it is supposed to.) Markets have been grossly manipulated to create false valuations, as any experienced watcher of them knows, this has been true since the 1987 crash. Markets are overvalued by any historical measure and could very easily drop much further from here, in fact are predicted to do just that by the people smart enough to call the top at 29,500. Please remember, Nasdaq corrected a full 80% in a year and a half starting with 2000 crash.
* Among other things he's the guy who took Dairy Queen and Winnebago out of bankruptcy. Also bought a million ounces of silver at $5.00. He can retire soon.
5
@slangpdx
NASDAQ 'crash' was because people thought companies like JDS Uniphase were actually worth something. When a luggage porter at Disney World gave me stock advice in 2000, I knew it was time to cash out. Buffett called the market bottom perfectly in 2008. It is always good to buy assets when people are panicked. Look at the pillaging Buffett is doing with Occidental Petroleum this week and you will follow his moves wherever he goes.
3
@slangpdx The problem with resisting overvaluation is, in the words of Keynes, "The market can remain irrational longer than you can remain solvent." That said, the peak nasdaq p/e before the dot-com crash was 175, so losing 80% of its value was fairly predictable. The s&p p/e today is just over 20, so any substantial fall requires a long-term fall in projected earnings.
1
Has the stock market bottomed out? No one knows. But if you buy high quality stocks that pay a good dividend and your time horizon is three to five years now is the time to be opportunistic.As Warren Buffet once said” if a stock is not worth holding for ten years it is not worth holding for ten minutes” Play the long game and do not fret over the day to day gyrations of the market.
23
"Put those two together, and you’re earning an extra 3.8 percent a year for putting your money in stocks instead of bonds"
This so-called "extra 3.8 percent a year" is meaningless when your principle investment is dropping 15, 20, 30....or perhaps 50 percent or more....which is what happened after the 2000 and 2007 bubbles.
Irwin completely fails to inform readers that on Feb. 19th, basic metrics such as the price/sales ratio and total market cap/gdp were at absurd levels surpassing 2000 and 2007.
And even after this recent drop...stocks would still need an additional 25-35 percent drop to hit their long-term median value.
Furthermore, most bear markets will not bottom at the long-term median value. Stocks will get oversold on the downside....just as they got overbought on the upside.
This is what happened after the 2000 and 2007 bubbles. It will happen again.
28
...unless we enter a prolonged depression and the only way out is a World War III.
World War II saved us financially pulling us out of the Great Depression and launching the US. a few hitches aside, into an unprecedented period of seemingly endless prosperity. Does anyone really expect to reap the same benefit from a World War III?
4
An added danger is that profit margins average 12% of corporate revenues currently, which is 50% above the historic average.
So, if you combine 1) falling corporate revenues, 2) falling PE's, and 3) falling profit margins, then a 40+ percent decline would not be unthinkable at all.
The market hit PE:15 on Thursday's low, based on $165 in possible 2020 S&P500 earnings. That's not a cheap market at PE:15. It's only an average long term valuation. There's no reason a prolonged GDP decline during a pandemic wouldn't be expected to produce a lower-than-normal market valuation at some point. Investors should be patient, and only average back in on dips, if they have investable cash sidelined.
3
If I know one thing about investing, it is that everyone has an opinion and most of us have no clue and that includes the "professionals" that guide American investors.
The financial markets are ostensibly a casino run by gamblers, quants and many who are throwing darts all day long and basing future earnings on past models.
There is no model right now to base this catastrophe we are all in.
If anyone tells you they know how to right this current economic meltdown they are lying, full stop. Stay away from them.
48
I'm not convinced. If market valuations fall below the historical median/mean, then there could be a case to be made for a good value. However, we're still about 63% higher than that right now (Shiller PE). And we're at the beginning of a global pandemic. One could even argue that if we were at historical valuations, the market would still be overpriced, because of the economic risks with the pandemic. The point is, nobody really knows when a good time to buy more is, but a 20% off sale on a product that was artificially marked up 100% in recent years doesn't seem like a screaming good deal to me.
97
@Republi-con Agree about the unknown of the economic risks of the pandemic, but the market was not "artificially" overpriced. There are reasons (good or bad) for high valuations--if nothing more than liquidity and nowhere better to go. But there are more reasons, too.
Ultimately, though, we have never been in this situation before--with the background of the developed world markets and their interactions, especially. It's always a risk call, but not always in such a volatile situation. Still, if you have the money and the time and the patience and the self-control, things will likely work out for you
3
I recently came up with a philosophical reason for investing in Total Market ETFs in after-tax accounts and Total Market Mutual Funds in tax-protected accounts that goes somewhat like this:
You are likely to make the most money (and take on the most risk) if you run your own business like rental property or a cafe or a shop or something.
When you buy a Total Market ETF, you become the passive fractional owner of ALL the business in USA where some will prosper and some will fail. But on the whole, the society will grow and prosper. And thus when you own Total Market ETF, your savings will grow with the society.
I maintain a 'cash buffer' worth one year of expenses.
Based on this thinking, the market gyrations don't bother me. I don't time the buying or selling. I buy Total Market ETFs when I have excess cash. I sell when I need money in excess of my 'cash buffer'.
I will be delighted to know if you could suggest ways of improving upon this approach. Thanks.
8
"With the sell-off through Thursday, that number had risen to 4.2 percent — last year’s earnings were unchanged, but it was a lot cheaper to buy a share."
True, but not all of us can buy shares right now. Many of us are retired, and just saw a portion of our nest egg tank. And falling interest rates are a double whammy, affecting growth and income of non-stock savings.
So look outside your own narrow life, and look at the bigger picture.
12
@BobM The "bigger" picture is to retain some cash as part of your retirement portfolio, so that when the opportunity arises, it can be invested at "bargain" rates. Every seller this past week had a willing buyer on the other side of the transaction.
7
@BobM Or you could choose to be more generous in how you respond to s single column that could never address the circumstances of all the readers.
3
@Tom If there were willing buyers for those stocks bring sold why did the market crash?
1
I do wonder whether Americans would have been better off receiving larger (and safer) Social Security checks in retirement.
Working Americans could have, decades ago, begun contributing a greater percentage of their paychecks to Social Security to be professionally managed, rather than contributing those sums to 401(K)s.
It seems that much of the money from 401(K)s has gone to Wall Street in the form of expense ratios, with ordinary citizens helplessly tethered to a market driven by trading professionals.
How much time - and truly, there is no more precious commodity that we each possess - have we collectively spent learning by necessity about ETFs, large cap vs. small cap funds, bonds, and so forth? By keeping track of pre- and post-tax contributions? By wondering about Roth conversions, and all manner of financial and tax esoterica?
And who will now provide for those folks whose 401(K)s never realized what they might need for retirement, or those folks who simply didn't have the money to contribute to begin with?
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@Gambel's Quail "Working Americans could have, decades ago, begun contributing a greater percentage of their paychecks to Social Security to be professionally managed, rather than contributing .those sums to 401(K)s."
I think you need to research how Social Security actually works. There isn't a single asset owned by the Social Security Administration. Current payments from workers go to pay out benefits to current beneficiaries; if there are excess payments made into the SSA, those are credited to the treasury and Treasury issues a debit to the SSA.
Furthermore, contributions to SSA are already fairly high (6.2% from me, 6.2% from my employer for a total of 12.4% of my earnings going to Social Security). The payout from decades of this provides certainty, but by no means a decent rate of return. If you invested 12.4% of your annual salary into the market; most would retire millionares.
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@Gambel's Quail: James from Chicago is correct, social security funds are not "invested" in the common sense. Still, you can estimate an effective "rate of return on investment" from the amount of SS taxes you and your employers have paid and the total payments you are likely to receive. For me, that rate is less than 1%/year. Even with the recent decline, my average rate of return from more traditional investments exceeds 8%/year over the last 40+ years.
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@James
"If you invested 12.4% of your annual salary into the market; most would retire millionaires."
That is true only if you work 30 to 40 years. With Social Security, you will get a payout if you be come disabled in your 30's, and would get more back then if you invested in the market. (I am too lazy to look up the minimum years worked to qualify)
I dont think you can compare investing in the market personally to Social Security, it is not a direct comparison.
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My confusion is: What happens to my investments when the capitalist, industrial economy implodes due to global climate change? If we continue to follow our base instincts to consume, will we destroy our planet and ourselves? It seems to me that I should invest in something tangible that I can use to live in the future, not something I can sell for a profit. Things that make me more self-sufficient, and not at the expense of others.
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@Hah! Take a look at ESG investing. It is becoming increasingly popular in investing circles, especially with increasing calls to divest from fossil fuel companies.
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@Hah! Climate change is going to trigger massive spending from governments and businesses. Building seawalls around Miami will require hiring many workers and spending a lot on materials and engineers.
Technology firms such as Tesla are spending a huge amount of R&D to solve the issues of Climate Change, as are utilities and many other firms.
Think about the Space Race. We spent a lot of money in the 1960s, but it lead to breakthoughs in aerospace, computing, and medicine. Climate Change is a huge positive to the markets.
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@James
I disagree. That thinking seems akin to the spending effects due to a storm. Yes there is spending but it is only to alleviate damage. Essentially it's a tax on what could otherwise be constructive spending.
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Looking only at the stock market as an economic barometer for the country is short sighter and provides a very biased version of reality. Somehow, average Americans find that when the stock market loses this kind of value (perhaps with more even to come), it's not an "extra 3.8 percentage points" in potential compensation but rather a life altering and existential threat. Losing their job, income, and house pushing them into bankruptcy. To top it off, tax payer money is then used to bailout those caused the problems in the first place.
People are tired of privitized profits but socialized support of losses.
If citizens are expected to save their money to weather such storms (as squirrels as Commenter Polaris points out), then why are companies and banks not also expected to have cash on hand to weather such storms as well?
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@Casual Observer They used to have to. It was called regulation.
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Always buy low and sell high = KISS principle.
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@Benni
You sound like Will Rogers: Buy stocks when they're low, and sell when they go up. If they don't go up, don't buy them
KISS, indeed, but until we have 100% foresight, it's not always simple.
@Benni
Simple formula. Divide your cash in half. Invest one half in S&P 500. Sell all to cash position if it goes up 25%. At each 10% decline, put in 25% of the remaining cash half. This does not fail and is cheap on the expense side.
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Bottom line, unless you are in a special situation, don't panic in the market. Do nothing and sooner or later it will come back like it always has albeit sometimes taking a long time.
The crash was bound to happen with an insane trade war, record corporate, consumer, student, national debt and this virus scare as a kicker.
The only question after the virus scare if over is how long and how bad the crash will be.
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@Paul Many of the problems have nothing to do with "markets" per se. Yes, there were areas that were expensive but the reality is that what is happening is a consequence of the elimination of the safety net in American society since 1980.
Every recession sees certain actors thin out the protections even more so eventually when the next recession comes, the country and more people are less prepared.
This DUMB cycle has to end. It is time to face reality and restore what once worked. Sure it cost money but you were also buying INSURANCE that you will use one day (given recent experience: once or twice each decade).
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@Larry L Thank you for your reply. Yes, the safety net is another somewhat related problem.
When the next crash comes, the holes in it will show.
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"It requires a leap of faith just to place hard-won savings in such an abstract, ephemeral thing as a share of stock ... Instead of spending on something concrete that can be enjoyed immediately ...."
Squirrels bury acorns, so they are ahead of us in this regard.
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@Polaris
A share of stock is harld abstract. It represents a true slice of ownership of a particular company, preferably one that's of good qualty, and with a history of profitability.
Spending one's money on something concrete achieves exactly the opposite of investment. One's hard-won savings is instantly gone in a flash, with an ephemeral "high" that disappears over a short amount of time, leaving the person with nothing whatsoever. Or should I say, leaving the person with abstract thoughts of what he/she could have turned that money into down the road by investing in shares of stock.
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@Polaris I think squirrels only recover a third of their savings of acorns.They should invest in some gps mapping, beats searching.
just saying..............
Above my computer desk I have a one dollar bill with George Washington's scowling face. Apparently George didn't like to smile because of his bad teeth. Below George's dollar I have a income tax refund check from the United States Treasury for $1, reminding me that while the Buck in the Treasury may not be much, it took what George had to have created us that has lasted for more than 200 years, no matter what the markets do.
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Remember a couple months ago some genius said the market was ready for a "melt-up"? How did he come to that conclusion? Does he understand how sentiment works? It reminds me of a line in the movie "The Big Short":
"Short everything that guy's buying." - Mark Baum
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I have a better mental trick: think of the stock market as a casino in which you can buy shares. Over time, as casinos generally do, your casino will make money. But sometimes the players will stay home, or the cards will all go their way, and your casino will get hammered. But hang in there cuz as long as the suckers keep walking through the doors with new cash, you will win.
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I dislike casino/stock market analogies. Casinos have negative expected value (all gamblers in aggregate will lose money; some will lose a little, some everything, and some will even win). Stock market has positive expected value.
Positive expected value means the whole market. There is a distribution of returns unknown before the fact; thats the argument for passive investing. Buy everything with low transaction costs and experience total market returns.
Most of the current selling is non-passive parties (some is obviously retirees taking RMDs). Active managers in aggregate will have market returns; but with the distribution of returns much wider (a few make a lot, most make average, a few are below average). Since all active managers take a few, and in aggregate the total universe of active investors earn market returns; its best to stay passive to avoid fees.
One must decide if they are a passive investor or take uncompensated risk in active management.
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While I agree on your long term view, I take exception to using past earnings as a basis for current investments. Most investors are far more interested in future earnings and earring potential than in past earnings. Yes, a long string of past earnings, particularly if they are consistently growing, can be the sign of a well managed company. But always remember, the past may influence the future, but it does not predict it.
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Valiant effort, sir. But Buffet and the like have been trying to convey that for a few centuries. Every time it seems brand new to most of us.
I was planning to retire this year but I'll be working another 5 or so, looks like. Luckily, I have the option.
I did have an impossibly low bid on a stock purchase that got filled unexpectedly. Yay...
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The most important first step of financial planning is diligently tracking expenses - the more detailed, the better. You can't manage that which you don't measure.
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I used to buy on dips. now I sell on bumps up.
8
Many, many people are perpetually determined to buy stocks high and sell them low. Just remember that markets go down as sellers get more desperate, but someone is buying on the other side of each trade.
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@Pat If a buyer can be found. Which sometimes is not the case.
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@Gordon - Buyers have always been found, price just needs to get low enough. The stock market has never gone down to zero - yet.
Chhers.
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@Gordon
That's what market makers do. But the essence of the market is that views always differ and when many are panicking to sell low there are those who keep their head and buy securities when they are effectively on sale.
5
Isn’t there anyone out there in a posing visibility and knowledge who is willing to point out that the stock market and the economy are not one in the same. A bounce in share prices doesn’t help those recently laid off nor dies a payroll tax holiday do anything for a gig worker not collecting a paycheck.
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These sorts of articles are meant to allay your fears and keep your money in the hands of these banisters who will further plunder your nest egg. After all they are never held accountable for their grievous mistakes but people who trust them lose their shirt all the time.
Welcome to the great capitalist scam. Win, they gain. Lose, you fail.
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@FurthBurner
NOBODY is plundering nest eggs here. You act like investment firms WANT the market to decline, as if they wouldn't like to prolong the illusion that things only go up, like during the housing bubble - because people would stop investing absent that illusion.
A capitalist scam? What's your approach? - your mattress?
31
You can’t lose your money in a mattress
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@Zejee Goods and services get more expensive every year at a rate of about 2-3%. Money stagnating in a mattress is indeed losing its value as we speak.
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Seems false: "you’re earning an extra 3.8 percent a year for putting your money in stocks instead of bonds now compared with just three weeks ago”
You're earning 3.8 percent more a year in stocks now than you would be in bonds now
4.2 - 0.45 = 3.75
But you’re earning an extra 2.08 percent more in stocks now than in bonds now compared to three weeks ago.
(4.2 - 0.45) - (3.1 - 1.43) = 2.08
9
After the 2008-9 financial crisis I hoped I would never experience something like that again in my lifetime. We aren’t at that low yet. Let’s hope we don’t get there. In 08-09 I was fortunate enough to keep my job but took pay and benefit cuts and 30% of my co-workers were laid off. It transformed our entire industry in ways that still affect us.
Regarding the markets: I’m a typical upper middle class saver with IRA’s, a 401(k), and some cash. I stayed the course in 08-09, didn’t sell into a down market, and it all came back fine. I am still over a decade from retirement so that’s the plan now too.
That said, I have long thought about starting investment outside the markets, like a rental property. I don’t especially want to be a landlord but I’m sick of having to care about the market so much. There is a lot of appeal in something simple and tangible even though it won’t rocket in value during a bull market.
When I have real flights of fancy I think about how nice it would be for people to have pensions again and leave most of the worrying to the professionals. Sometimes I hark back to ancient times when someone who wanted to save money outside the stock market could get a decent return on a deposit account or a CD. Our financial and corporate overlords have destroyed those savings vehicles and left us all at the mercy of the godforsaken stock market.
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Pension funds, managed by professionals, have access to investments that you won’t ever see in your Fidelity or Vanguard account.
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@Joe Bob the III - And how many people have lost their pensions because the companies they worked for went out of business or the pension funds were crushed in the 2000 and 2008 debacles? I have a friend going on 80 and he lost his pension and has to subsist on just his social security check.
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@Joe Bob the III
I had a choice of either a pension or a lump sum. I was
happy to take the lump sum and no longer be a slave
to the monthly dole. I manage the investments myself;
that became my new "job" in retirement.
My lifestyle is simple enough that I can live below my
means. I have sent two daughters to college, after retirement, and paid the whole thing without resorting to loans.
18
I'm a few decades away from being able to take money out of my 401(k) without a penalty, so I LOVE market drops like this. I crank up my 401(k) withholding and make a lot more money than I would have if the market remained relatively steady.
That being said, my main investment vehicle isn't the stock market.
8
Mr Irwin, for millions of Americans who are either retired, or close to retirement, this major drop in the stockmarket is nothing to "love." Nor will we "stop worrying" about our retirements, our mortgages, or whether we might not be able to afford our current expenses. For millions more Americans, this means that after the collapse of capital markets during the Bush years, they have taken an even greater hit to their financial security.
And on top of this capital markets hit, the stockmarket drop is a harbinger of what will certainly be one of the worst and most painful economic downturns in the past century. American workers are right now being laid off, losing their salaries, and being thrown into uncertainty as to how they'll be able to pay rent, or purchase groceries.
And let's be clear that hundreds of thousands of Americans are facing death over the coming months from this terrible virus, no matter which scenario, optimistic or pessimistic, one decides to believe.
No, Mr Irwin, this is a human, medical, financial, and economic disaster, one which is only just beginning.
There is no reason at all for Americans to "stop worrying" or to "love" this stockmarket.
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@Sean
Mr. Irwin isn't talking about loving the market. He is in my view eloquently describing what you receive for buying a share of the market as an etf and why that share price fluctuates rather than just earning interest on a bond or CD. The ability of the ordinary person to participate in the whole stock market for a relatively low cost with very minimal expenses is a way for the amateur investor to share in the US capital market just like Warren Buffett and other major financial gurus on Wall Street without being the sucker at the poker table that all of these gurus are trying to take advantage of when you buy individual stocks.
14
"When you buy a share of stock, you are buying a claim on an infinitesimal portion of the profits of that company for the rest of time."
NOT TRUE. If the price of your stock drops low enough, you can be sure that the private equity vultures will swoop in and force you to part with your shares for pennies on the dollar. The staggering market power of the few makes the rest of us sitting ducks.
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@Frank F Also, high speed trading is a HUGE advantage if you are a stock market insider, if stock prices fluctuate.
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@Frank F
Yah! I had something like that happen.
I owned Wachovia stock, which went down and down.
Wells Fargo bought it out at the bottom, so now I own
impossibly expensive shares of Wells Fargo.
2
@Frank F
Exactly that happened to me a few years ago. I bought shares in a company based on its free cash flow. The stock sank like a stone but was still great in terms of the dividend yield.
At the bottom it went private, and I was forced to surrender my shares at an 80% loss.
2
So much has *not* changed: broadly speaking, companies will still make products and offer services that consumers need (or just want). Managers will figure out how to conduct those activities profitably. Although our society still suffers from great disparity in the distribution of its resources, much progress has been made recent decades toward lifting millions of people out of poverty who can participate in our consumer economy. Yes, coronavirus will likely kill many people, but it is hard to imagine that it will reduce our population enough to permanently and significantly impact consumer demand for goods and services. And one potential benefit: just maybe, this crisis will help all countries recognize that we are all connected across this planet, and that collaboration, coordination and transparency among our nations will help us improve life for everyone.
38
I have never owned stock. I considered it immoral given the way corporations work and the way our financial system works and the way our politicians ignore the exploitation of American workers. I have never needed to make money on the labor of others because I have worked myself. It is true that I could have made more on my savings if I had invested in mutual funds and individual stocks, but I have never seen the need. I am perfectly happy with what I have earned honestly.
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@Chris
Have you ever deposited money in a bank for interest?
Consider what they do:
The local 14th National Bank lends money to the
restaurant down the street. The restaurant pays interest.
So, the bank is investing in the restaurant's business,
using your money. Bank gets a cut, and you get a cut.
You are making money on the labor of others.
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@Chris I agree with your sentiments about exploited workers. But have you stopped to consider how it is possible for you to earn interest on your savings? You don't invest in individual companies, but your bank almost certainly does. Have you checked to be sure the businesses they lend to aren't exploiting workers?
And they lend money to individuals, too. Like the hard-working family down the street who just a bought a house and is now paying mortgage interest to your bank, so the bank can pay you interest.
So, you are making money off the labor of others. We all do, one way or the other.
4
@Zetelmo
Yes, and they are shutting restaurants all over now. Probably for weeks if not longer. Most of those will declare bankruptcy. Then the landlord can't pay the underlying mortgage. The waiter can't afford their tuition so they have to drop out, the dishwasher can't pay their rent, and so on and so forth.
That's where we are at.
7