Three Things You Can Do During this Bear Market Selloff

Morgan Ranstrom |

The Coronavirus global pandemic continues to play itself out within our government, health care system, the economy, local communities, and the financial markets. Concerning the latter, global stock markets are now firmly in bear market territory, defined by a loss of at least 20%. As a result, the question we are getting asked most by clients and contacts is, "What can I do during this stock market selloff given the unprecedented nature of the coronavirus?" 

To be clear, we are not experts in public health or epidemiology, so we will not attempt to write anything about coronavirus itself. More, though we are experts when it comes to financial markets and we certainly have thoughts on how to invest during times of crisis, most of it involves acting by not acting.

During downturns, most investors feel a compelling urge to just do something, yet this is precisely the time to sit on our hands, focus on our goals, and stick to our long-term financial plan. 

More, we have no idea when the pandemic will resolve itself, how it will affect the global economy, or when markets will turnaround. This keeps our options limited when it comes to daily reacting. For this reason, our best advice during times of calm or economic prosperity is to plan because when crisis hits we want to act on our plan, not react to current events. 

All that said, there are three things you can do during this time of extreme uncertainty and fear. 

Wash your hands

Washing your hands was the best advice given during the 1917 Spanish Flu Pandemic and it remains one of the best pieces of advice to implement currently. It is important that we all diligently follow preventative measures recommended by health experts at this time.   

Give

Many individuals, families, and hourly workers are going to struggle mightily over the coming months as hours get cut back, jobs are lost, and funds and resources dry up.  We have been thinking about young families who will face impossible decisions like whether to buy diapers or groceries or who do not have the financial ability to buy in bulk prior to potential quarantines.

If you have the ability, now is wonderful time to support non-profits who do wonderful and necessary work in our communities to help food and home insecure individuals and families (or, of course, to support the church, synagogue, or non-profit of your choice!).

Buy More Stocks 

During bear markets, we generally recommend accumulators increase their bi-monthly 401k or retirement account contributions if possible or invest excess cash, above and beyond what is necessary for emergency reserves, into global stocks. Additionally, there may be opportunities to rebalance your investment portfolio by selling holdings that have performed well (on a relative or absolute basis) and buying holdings that are down worse. If you are curious as to whether this is applicable to your specific financial scenario, please reach out to a financial advisor (we generally recommend consumers seek fiduciary and fee-only financial advice). 

The below chart from Dimensional shows the average US market returns over 1, 3, and 5-year time horizons after a market selloff. As you can see, investing during times of crisis has historically been profitable.

 

Fama/French Total US Market Research Index Returns

I can assure you the Trailhead Planners team has been doing all three. This week, beyond washing our hands, we donated funds to Small Sums, a St. Paul, MN non-profit that helps homeless individuals, who have founds jobs, with the specific things they need to get back to work (think work clothes/shoes, trade tools, professional licenses, union dues, and/or bus basses, subway gift cards prior to receiving their first paycheck).

Additionally, we have all been making buys in our personal retirement accounts to take advantage of cheaper stock prices. Do we have any sense of what the bottom will be? No. But does it matter? Not to us. We all have long-term, multi-decade time horizons for our investment portfolios and see times of heightened uncertainty as opportunities to add to our investment holdings.

We wish you the best over the coming days and weeks as we collectively confront the current health crisis. Be well!