The coronavirus pandemic has only been headlining the news for a couple of weeks so far, but life pre-coronavirus already seems a distant memory. We don’t shake hands, we don’t go to church, in fact, we don’t go much of anywhere anymore except the grocery store. And that’s a whole other story.
We are living in unprecedented times. No one knows what the future holds, so there is an air of uncertainty overhanging the entire globe. Nowhere is the uncertainty more apparent than in the stock markets. Have we hit bottom? Is this just the beginning of an even worse drop? What will happen if no one is going to work?
The Question On Everyone’s Mind Right Now
A common question on many investors’ minds right now is Is now the time to move all of my investments to cash? It’s okay if that thought has crossed your mind recently. With how quickly the markets have fallen, I think it has been crossing everyone’s minds. Questioning the best path forward is normal in such times of uncertainty.
I wish I had a crystal ball and could tell you what the future holds. I wish I could reassure you with how things are going to turn out for your investments. But I can’t.
What I can do is show you how things have turned out in the past so that you can at least make informed decisions. The stock market is fickle and no one knows when it will make a sudden turn to go up or down. Last year, the S&P 500 enjoyed its biggest first-quarter gain since 1998. A month ago on February 19, the stock market hit an all-time market high. And look where we are now.
The Effect Of Missing The Best Market Days
Investors who try to time the market often miss out on some of the best days while trying to avoid the worst days. Missing as few as 10 or 15 of the best days in the market can have a disastrous effect on your investment returns.
If you had invested $1,000 in the S&P 500 from 1990 to 2019, it would have grown to $17,273 for an annual return of 9.96%. That would be your return if you had left the money invested the entire time.
If you missed only the very best day, your return would drop 0.4% annually and your $17,273 would only be $15,480, a loss of $1,793. Now, what if you missed the 15 best days out of the 30 years? Your $1,000 would only grow to $6,733, for an annual return of 6.56%. By trying to time the market, your return ended up being only 40% of what it could have been if you had just kept your money invested the whole time.
Now remember, these numbers are looking back over the past 30 years. Past returns are no guarantee of future results. It does provide support, however, for Dave Ramsey’s common saying that “the only people who get hurt on a roller coaster are the ones who jump off.”
The Importance Of Having A Plan
When people change their investing plan due to current circumstances, they can end up missing out on some of the best days of the stock market. They allow the emotions of the moment to lead them away from their original plan. Doing so can come at a high cost, as we saw above.
Investing decisions usually suffer when based on emotion. That’s why it is important to have a plan to follow regardless of your current emotional state. A plan that is strategically developed based on logic and personal goals can serve as a compass during uncertain and emotional times.
Do you have a plan for your investments? Or are you currently being blown about by the winds of uncertainty? No matter where the markets are going or where you are in life, it’s never too late to develop a plan for your finances. If you would like help in developing a plan for your finances that can guide you through the months and years ahead, schedule a call with me by clicking this link.
Finally, as you face the uncertainty of the markets, I would like to remind you of the hymn that Edward Mote so wisely penned back in 1834:
My hope is built on nothing less
than Jesus' blood and righteousness;
I dare not trust the sweetest frame,
but wholly lean on Jesus' name.
On Christ, the solid rock, I stand;
all other ground is sinking sand,
all other ground is sinking sand.
About Guide Financial Planning
Guide Financial Planning is led by founder Ben Wacek, who is a Christian fee-only Certified Financial Planner™ and Certified Kingdom Advisor®. He has a passion to help people of all income levels make wise financial decisions and steward their resources from an eternal perspective using Biblical principles. Based in Minneapolis, MN, he works with clients both locally and virtually throughout the country and abroad. You can follow the links to learn more about Guide Financial Planning and our team and the services we offer.