COVID-19: What does it mean for my retirement plan?
This time it's different.
We are living in a challenging time. COVID-19 has shut down the global economy, some lucky people are working from home and others have been forced into unemployment. Markets are at their lowest in years and many investors are experiencing their first major correction, something completely different than what we have seen over the last 10 years. But just how different is this? Has this happened before?
October 19, 1987 – “Black Monday”
Black Monday was the largest single day decrease in stock market history with the Dow Jones down 22.6%. All 23 major world indexes fell that October, sparking fears of a recession that could rival the Great Depression. World debt was high, and corporations were in a terrible position to handle a recession. Fear was widespread, many panicked and sold investments thinking this was the end. Sure, markets had crashed and rebounded before, but this time was different.
Tuesday Morning, September 11, 2001
The day the world stopped moving. After the second plane hit the South Tower the New York Stock Exchange (NYSE) closed, the first time in 68 years. Other major exchanges closed that day, and the world was left in shock.
When European Markets opened the next day, everything fell. The NYSE opened the following Monday and the S&P 500 dropped 14%, the largest one-day loss in its history. Already suffering the effects of the bursting dotcom bubble, investors saw their life savings come tumbling down and we prepared for war in the Middle East. The attack and possibility of nuclear weapons brought more fear than just bad returns could. We had seen markets fall and seen them in war time, but this time it was different.
October 9, 2007 – March 9, 2009 – Financial Crisis and Great Recession
The Financial Crisis of 2008 saw banks that were “too big to fail” without cash and in serious trouble of doing just that. Lehman Brother, one of the world’s largest institutions closed their doors after 158 years of operation. Markets crashed; pensions were cut in half. Fear was at an all-time high and it seemed like things would never recover. The resulting recession was one of the worst the world has seen. People lost their jobs, their homes, and their confidence in the financial industry. Had it not been for heavy government intervention banks would have failed, this time was definitely different.
The four most dangerous words in investing are: “This time it’s different.” - Sir John Templeton
Not so Different After All
What do all of these, and every other major crash or major tragedy have in common? We got through it. The Dow recovered from its 1987 crash and investors who stuck with their long-term plan and held on through the chaos saw great returns through the ‘90’s. The S&P500 recovered from the impact of 9/11 and nuclear weapons never flew from the Middle East or America. Not only did markets recover from the 2008 financial crisis, but the recovery sparked the longest sustained Bull Market we have experienced, lasting 10 years.
I am absolutely not making light of any of moments in history, 1987 and 2008 put a lot of people out of jobs. And words can’t describe the horrible tragedy of 9/11 and following conflict.
It is hard seeing your investments fall, and with COVID-19 having effectively halted everyday life; fear is again gripping our minds. We made it through everything else, all the other market crashes and all the other tragedies and we will get through this. Every crash feels like “this time it’s different,” however the old adage of “buy and hold” and “stick to the plan” has held true.
When we build your financial plan, major market corrections like this one are expected. Investments are chosen that suit your goals, and your specific situation. Times like these are some of the most important in your financial plan and the biggest mistake we can make right now is panicking. Trying to time the market by selling now and buying on the way up will not work. We will time it wrong, we will miss some of the best recovery, and it will have a negative affect on your investments long-term performance.
Don’t lose sight of the long-term plan, review with your advisor, and if your situation has changed or your investments are no longer suitable, that is the time to make changes.
Have questions about the state or your retirement savings? Looking for a second opinion? We're here for you! Contact our wealth team today.
Disclosure. This in an opinion piece and all opinions expressed are mine alone and do not necessarily reflect the opinion of Innovation Credit Union, Credential Asset Management Inc., or our other advisors. The information contained in this email was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This email is provided as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell any mutual funds. Mutual funds are offered through Credential Asset Management Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual fund securities and cash balances are not insured nor guaranteed, their values change frequently and past performance may not be repeated.