Updated February 2, 2022

It’s been nearly two years since the economic impacts of Covid-19 and subsequent containment protocols first began hitting the markets. Given today’s (still, but for new reasons) turbulent market conditions, it seems to be a good time to reflect on the aftermath of the 2020 market drop.

The thing I’m not going to do is claim that I “called it” or predicted the market would recover like it did. It’s easy to find someone claiming they predicted this or that in the market, and it’s all hogwash that preys on our human biases. I had and still have a high degree of confidence in capital markets to reward participants who tailor their portfolios to their unique goals, but I know that it also comes with a large dose of volatility. If we understand and accept that fact, I will always look forward with optimism.

There are two important lessons that we can take away from this article and the events that precipitated it.

1 – No one can predict the future or the markets

2 – Discipline is hard but critically important.

It’s easy to forget the pain and fear we all felt in March of 2020, when it seemed like the world, much less our portfolios, was collapsing. In the midst of a severe downturn, regardless of the cause, our mind screams at us to get as far away from it as possible, and that we’ll somehow know the right time to get back in. It’s a short-term Band-Aid that usually causes far more pain long-term. Just as no one saw the global pandemic coming, very few people would have guessed that the market would recover so quickly, seemingly during a terrible economic storm. It’s human nature to think we have a greater ability to time the market than we really do, and it’s imperative to avoid that trap. The fear of loss is always nagging at us, telling us to sell and wait it out. Eventually, you would be “right” to do it, but more often than not you will instead be missing out on returns that are critical to the success of your plan.

It’s challenging in large part because there are always so many things out there telling us that everything is terrible. The news is the most prominent and consistent offender. Negativity sells, and if you are constantly looking at the news for direction, you will be led into a never-ending cycle of negativity. Combine that constant drumbeat of pessimism with an actual market downturn and real losses to your portfolio, and it’s no wonder the temptation to sell and retreat is so strong.

This holds true whether the news of the day (or cycle lasting two years) is a rapidly spreading virus, economic downturn, bizarre job market conditions, or massive inflation. We’re currently in the midst of a market drop and it may feel like a big deal that requires changes to your portfolio. But it’s nothing out of the ordinary for the market; staying the course and looking for opportunities to rebalance into stocks is what we believe to be the best approach. No one knows how long market movements will last, so attempting to predict them and time the market is a bad gamble.

There will be more market crashes, corrections, and downturns in the future, and I believe the guiding principles of discipline and diversification will continue to give us a far better chance of navigating them than any other strategy.


Original Article Published March 4, 2020

Over the past week, the global markets have seen a rapid drop in value due to fears about the spread and impact of Novel Coronavirus, 2019-nCoV. The coronavirus is a rapidly spreading, acute respiratory virus that originated in the markets of Wuhan, China. Since early January, it has quickly spread from China to the rest of the world.

The coronavirus threatens global supply chains, which could cause a ripple effect through delayed processing, unfilled orders, and decline in supply. China has taken extreme measures to prevent an outright pandemic, but fears of a global outbreak are still high, and the virus has spread to nearly every continent. Travel and Commodities have been hit especially hard.

Is this unprecedented?

No. Since 1970, there have been several epidemics that had the potential to negatively impact economies across the globe. In some cases, there was a drop in global markets, in others, the market shrugged it off and continued upwards. The chart below shows some of those epidemics and the returns 1-month, 3-months, and 6-months post epidemic.

Note: MSCI World Index scale is reflected in the left vertical axis.
Source: Charles Schwab, Factset data as of 1/21/2020. Past performance is no guarantee of future results.












The market is assessing the impact of the disruption to corporate profits. In the short-term, the impact will most likely be negative, hence the quick drop in market valuations. In the long run, the aggregate valuations of those corporations are much more dependent on broader market conditions, which are impossible to predict with a high degree of confidence. Looking at the chart above, the 3-month and 6-month “post epidemic” returns look a lot like 3 and 6-month returns without an epidemic. What that really means is that an epidemic like this doesn’t give us any actionable information about future returns.

The severity of the drop over such a short time frame might also cause concern but, again, this is nothing new. Since 2009, the S&P 500 has experienced drops of 5% or more 26 times, with a variety of concerning headlines to go along with it.

(Source: S&P 500 Indices https://us.spindices.com/indices/equity/sp-500)










These drops have lasted anywhere from 7 days to 100 days, which makes “timing the bottom” a difficult proposition and one that is most likely going to only add more stress and uncertainty to your investment plan.

How does this impact me?

While you should take precautions about traveling to certain regions and make sure to take good care of yourself physically, the impact to your planning goals should be minimal, other than the short-term stress it might cause you. Well-diversified portfolios are designed with volatility in mind (otherwise why diversify?) and to withstand that volatility; that doesn’t mean your portfolio won’t go down in value but should hopefully avoid the more extreme drops attributable to concentrated positions. Your plan is designed for your needs, and you should have adequate reserves in place to cover short-term spending and to rebalance into volatile markets.

What should I do?

The temptation is going to be to fret over the drop and think about selling your investments and waiting for a recovery. You also might be thinking, “why didn’t we sell on XYZ date?” While that might make us feel better in the short-term, it’s usually a losing proposition. There’s no telling when the market will stop dropping, and often the largest single-day gains in markets come during times of large losses. Missing out on those large, single-day gains has a huge impact on your long-term returns. Your investment plans should not hinge on successfully timing drops or recoveries in the market, as that has been attempted innumerable times with dismal results.

Instead of looking to retreat from a market downturn, the best course of action is to be proactive in the context of your plan: If you have lots of cash sitting on the side, now is a good opportunity to evaluate how that fits into your long-term goals and whether it makes sense to invest some of it. Some additional things that can be reviewed in times of market turmoil are the opportunity for tax-loss harvesting, to rebalance your portfolio back to your target allocations, or take advantage of ROTH conversions. We will continue to review and monitor our client accounts for those opportunities and to ensure their plan remains on track.

As always, we are available to discuss your unique plan and situation and to answer any questions you may have. For additional perspective, check out this article from David Dick, CFP®: The Impact of the Coronavirus on the Market and Your Financial Portfolio.