Investing in a Down Market

Gains. Risk. Losses. Volatility. Uncertainty.

We have all heard or read these terms. But it’s very different when you are living in the moment and experiencing the “what do I do” feeling. If I count the 1980-1982 downturn, I have lived through 6 official bear markets (20%+ drop from it’s high) and just as many bull markets (20%+ increase from the low) in my 35 years of investing experience. Each bear market is different but the feelings of uncertainty and fear are very real and consistent. Even now, with all my experience, I see the impact on our family’s portfolio and feel that knot in my stomach. Fear is not a bad thing; it motivates me to do extensive research and listen to as many smart people as I can, but at the end of the day, any decisions are mine (the royal mine which includes my wife) to make along with the consequences. So what to do?

First, take a deep breath and remember that investing is not for the short term, it’s for the long haul, 10 years or more. Proverbs 21:5 says, “The plans of the diligent lead to profit as sure as haste leads to poverty.” Luke 14:28 also reminds us, “Suppose one of you wants to build a tower. Won’t you first sit down and estimate the cost to see if you have enough money to complete it?”

Times like these highlight the advice I have given to many friends and family. First, have a budget, know where your money is currently going. Second, set goals, short and long-term. One great short-term goal is to have a reserve of 6-12 months of your monthly expenses. Imagine if you had 12 months of reserve set aside today. How would having the additional savings affect the way you feel in the midst of this crisis? Long-term goals are where investments reside. If you are investing without having a reserve of money set aside for short-term goals, you are taking a huge risk.

On February 19, 2020 the S&P 500 hit a high of 3,386. On March 23, the S&P closed at 2,237, a drop of 1,149 points or 33.9%. We are inundated by market reports of how the Dow Jones and the S&P 500 indices are up or down, but most of us are not 100% invested in stocks. A diversified portfolio reflects the amount of risk you are comfortable in taking and should include fixed income investments as well as equities. Ecclesiastes 11:2 says “Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land.”

As I write this, the week of April 6-9, the S&P 500 is up 12% for the week and up 25% from the low on March 23rd. Is this the end of the market downturn? Most likely not. Given that we do not know how the COVID-19 virus will ultimately impact the economy, volatility will likely be here for a long time. The previous bear market of 2007-2009 lasted 17 months, with considerable volatility during that time period.

The time to protect your financial well-being is before a crisis happens. Though you may have been financially hurt more than you liked, you can still respond to the crisis with positive financial choices. Start by creating a budget, becoming more disciplined with your spending, committing yourself to having little or no debt, start saving for an adequate reserve, and creating well thought out goals for the future. Remember to keep the important things in life first.


Written by Financial Stewardship Volunteer Edgar Alvarado.

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