COVID-19 - May 28, 2020

Taming the Bear: Worry Less & Breathe More in Today’s Market

by Kathie Miller

As the world started to face the stark realities of the COVID-19 pandemic in March, we faced more than just a public health concern. The novel coronavirus was clearly affecting international economies and markets, and the U.S. economy was not immune.

On Monday, March 9, 2020, the Dow Jones Industrial average dropped by more than 2,000 points, causing an automatic halt in trading, known as a “Level 3 Circuit Breaker” halt, for the first time in more than 20 years (since October, 1997). Two days later, with yet another significant drop, we officially entered a bear market.

This sudden plummet felt even more dramatic because the U.S. had enjoyed an historic 11-year streak of an upward trending bull market.

All Good Things

Like all good things, even bull markets come to an end. Perhaps even more importantly – this end was expected, even if no one could have predicted the cause. Bear markets are a fact of life. And with the most recent record highs that lasted longer than a decade, economists and financial advisors knew we would face a downturn at some point. It was inevitable.

The subject of how to manage through a bear market was the topic of a recent webinar hosted by Goodwin Living At Home (GLAH) and offered exclusively to  GLAH members. The webinar featured insights from financial advisors Laurie Blackburn and Kelly Campbell, each of whom has more than 20 years’ experience in wealth management.

History Teaches Us, If We’re Willing to Learn

Benjamin Franklin wrote “Today is yesterday’s pupil” (Poor Richard’s Almanack, 1751). So, what can we lifelong learners gain from studying the history of bear markets? Perspective.

“There have been 12 bear markets—drops of greater than 20%--since World War II,” shared Laurie Blackburn during the webinar. She added, “And five times in the last 10 years, we’ve had greater than 10% losses.”

Blackburn touches on something modern psychology tells us. We tend to experience loss twice as intensely as we experience gain. This is a basic principle referred to as loss aversion. It’s the same idea that applies to us when we resist change—we often focus more on what we have to lose than on what we have to gain.

“We are inclined to focus on recent events and lose sight of history,” Blackburn commented. “Bear markets are normal. The recent drop is only the fifth most dramatic drawdown in the history of the stock market. On a longer scale, the economy grows.”

Kelly Campbell also commented on the history of the U.S. market. “Bear markets typically occur every five to seven years,” Campbell stated. “The Dow had never gone up for as long as it had recently, and we can all expect to experience three to five downturns in the market during our retirement years,” he added.

Bear or Bull, We Must Tame Our Inner Beast

Ups and downs are part of life. What’s important through the highs as well as the lows is that we keep a sense of calm through it all.

The internet is full of tips for keeping calm and managing stress. Tips such as these are important to apply to our everyday. They can help us gain awareness and cope with our loss aversion. They also help us keep focus and calm on a plan for our financial stability. It helps us avoid emotional investing.

No doubt, financial woes can cause significant distress and anxiety. To help reduce this type of stress in your life, most financial advisors recommend making a plan and sticking to it.

When asked, both Blackburn and Campbell emphasized this. “Long-term thinking is key,” shared Blackburn. “Practice discipline, focus and commitment to a plan,” she added. Campbell agreed. “Rebalance your portfolio based on your plan, and be sure to keep one to two years of cash on hand so you can ride out the storms,” he added.

While we cannot provide financial advice, we do hope we might provide you with insights and knowledge that you can put to practical use as you consider your financial plans. We invite you to watch the entire webinar for more insights from these two Northern Virginia financial professionals. (Please note that registration is required to access the webinar.)

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As Corporate Director of Marketing & Communications, Kathie Miller provides strategic guidance and tactical support for all areas of Goodwin Living. She writes, edits and manages The Good Life blog and newsletter. Kathie joined GHI in 2014 after nearly 15 years at NPR, where she honed her skills in brand and reputation management, content marketing and internal communications. Originally from Pennsylvania, Kathie has slowly come to realize she’s lived in Arlington for more than half her life and should call herself a Virginian. She enjoys the outdoors and brings her rescue dog, Remi, to work every day.