Chris’ note: It’s been another brutal day for stocks. As the scale of the economic disruption from the coronavirus sinks in, the S&P 500 plunged another 5%. It’s now down 29% from its peak. And it’s wiped out all of last year’s gains.
If you’ve been following in these pages, you’ll have been prepared for a crisis like this. You’ll have cushioned the blow to stocks with cash and gold. But there’s another hugely important thing you must do if you want to not only survive… but also thrive… through the difficult days ahead.
If you’re feeling nervous… or are panic checking your 401(k), please pay special attention to today’s insight from colleague Teeka Tiwari. What you do next could be the difference between retiring on time or working an extra five to seven years. Now, over to Teeka…
I’m one of the most conservative investors I know… Yet my losses over the last three weeks are now over $1 million.
Sure, they’re unrealized losses. But I can’t stop myself from thinking of what else I could be doing with that million bucks.
I could buy a pretty nice boat for $1 million… I could buy all three of my kids their own starter homes for $1 million… I could feed as many as 150 average American families for a year with $1 million.
All across the world, investors of every size are asking themselves the same question.
For some, the losses are in the thousands. For others, they’re in the billions. No matter the size of the losses, we’re all asking: What could I have done differently?
There are some questions we should not ponder. This is one of them.
As long as you’re using sound investing methodology, correct position-sizing, asset diversification, and minimal to no leverage… there’s no profit in diving into the well of “what ifs”…
You’re likely to emotionally drown yourself in self-recrimination. Worse, you may financially drown yourself with panic-based decisions.
As I wrote yesterday… even if you’d purchased the S&P 500 at its peak in 2007, right before it dropped 58%… so long as you held and reinvested your dividends, through this year’s peak, you’d have made a compounded annual return of 8.7% per year.
That return would’ve beaten bonds and gold – both considered traditional safe havens.
This is the beauty of buying high-quality stocks and blue-chip stock indexes.
Even as I catch myself silently mourning the temporary departure of my hard-earned dollars, I take solace in the fact that – so long as I just sit still – in time, the market will give me back far more than it has ever taken from me.
That’s why I want you to have faith that the sun will shine again.
We’ll overcome the coronavirus… We’ll get through the recession that most surely is awaiting us… And unlike the crisis of 2007-09, the recovery will happen much faster.
Remember, this is a sudden drop in demand due to a pandemic… not due to an implosion of housing prices and leveraged banks like we saw in the Great Recession.
It’s very different… a sort of short, sharp shock to the economy compared to the long, drawn-out deleveraging that had to take place in ’07-’09.
I realize these words might be cold comfort for you. But I’ve put my money where my mouth is for the last 31 years.
I’ve been in the market as a professional since 1989. I’ve seen countless booms, busts, and crashes. Again and again, the U.S. economy has proven itself far more resilient than the naysayers give it credit for.
So even if we end up dropping 40-50% – or more – during this market crash like we did in 2008 (and I want you to know that is absolutely possible)… the long-term compounding power of stocks will come to your rescue – as long as you stay rational.
Like I wrote yesterday, the market is self-healing.
Once we get past the immediate shock of the whole world sitting at home to stem the coronavirus outbreak… the unprecedented fiscal stimulus to follow will cause a massive boom in stock prices.
But between then and now, we all have to sit through some painful times. And while sitting still may feel like giving up… it’s actually the most advantageous thing you can do for yourself right now.
If you’re looking to be a buyer on weakness, consider something that has always come back from every market crash. I use the Vanguard Total Stock Market ETF (VTI). I’ve been laddering in on every 10% drop lower in the market.
Every single one of my entry prices is underwater. But I’m not investing for today. I’m investing for 18 months from today.
By then, I expect us to have a vaccine in place. And once we do, stock markets will be back to making new all-time highs.
Let the Game Come to You!
Editor, The Palm Beach Letter
P.S. Tonight at 8 p.m. ET, I’ll be presenting what I believe is the lowest-risk, highest-reward opportunity of my career.
The world has been focused on stocks, bonds, gold, and bitcoin… But it’s overlooked a tiny subsector of the crypto market that’s about to explode higher.
Tonight, I’ll show you how a handful of $500 investments has the power to grow into as much as $5 million.
I know that sounds ludicrous given the recent state of the global markets and current bitcoin prices…
So come join me at 8 p.m. ET and judge the facts for yourself. I promise, it’ll be far more profitable for you than anything you can watch on Netflix.