With all the chaos taking place around the world due to the COVID-19 pandemic, many people are worried about the future, worried they might get sick, and / or worried about their financial future as markets plunge around the world into bear market territory.
What should you do?
What should you NOT do?
We certainly don't have all the answers (although you may want to stock up on toilet paper:-), but we can offer some practical suggestions on making it through these challenging times with as little stress as possible.
1. Leave your investments alone!
You haven't lost any money yet, technically speaking. A loss is only guaranteed if you sell now. Instead, hold your positions in the market and ride the roller coaster to a better place in the future.
The only people who get hurt riding a roller coaster are those who jump off!
It might be hard to stay the course seeing your portfolios down double digits in just a few short days, but the market has always recovered from previous downturns. Just look at a chart illustrated below showing the S&P 500 since its inception nearly a hundred years ago.
As you can see, the overall trend is up! Ask someone you know who sold during the last crash in 2008 when the S&P dipped below 1,000 how they feel today about that decision. Probably not very good!
2. Consider beefing up your emergency fund.
As physicians you probably have little worry about losing your jobs even if the economy temporarily dips into a recession, but there's no guarantee of this, and if you do get sick you may need the cash to get you through the recovery period.
We would suggest it might be prudent to hold off on making extra debt payments for the next few months as we wait for the virus to run its course. Instead, stockpile the cash you would normally be using to get out of debt faster, and when the virus has run its course, throw the cash at your debt, assuming you don't need it for health reasons to replace income.
3. Keep investments going.
If you're out of debt and in a position to invest, don't stop investments. Keep plugging away at your same monthly rate as before and use the power of dollar cost averaging. One of the worst things you could do is stop investing at a time like this.
Think about the guy who turned off all his investments in 2008 when the market crashed. For many who stop investing during bad times their biggest mistake is not so much that they stopped, but that they never started back up again!
A quick example shows that if one stopped investing $1,000 per month in the S&P 500 when it bottomed in March 2009 he would have lost out on over $120,000 in gains, even after the most recent drop in the index!
4. Start investing if you haven't already begun.
Take advantage of at least the company match you have available to you to get started investing while investments are on sale. While our focus is primarily on helping doctors get out of debt and not picking investments, our portfolio recommendation would center on low cost indext funds to provide overall low fund management costs and diversity. A good starting investment we like is the Vanguard VTSAX total stock market index fund.
5. Keep your eyes closed.
A final suggestion is not to look at your investments too often. With the market down and up by insane amounts this week it's kind of like a car wreck with your investments, and like a real wreck sometimes it's hard not to look.
Remember, you may have lost thousands, maybe even hundreds of thousands, this week with the market drop, but those losses are not real unless you sell. Most of you have decades until you will need to tap into your investments to fund your retirement so there's no value in looking at what will likely be gone before you retire.
Stay the course. History shows, in most cases, a recovery will come in the near future. It might seem like a roller coaster ride at the moment so don't jump off or you are guaranteed to get hurt.
Focus on what you can control.
“Forces beyond your control can take away everything you possess except one thing, your freedom to choose how you will respond to the situation.”