Money Monday: March 30, 2020

By Sallie Krawcheck

Over the past few weeks, I’ve had any number of people reach out to me, asking for some insight into all things money during this unprecedented time: what’s going on in the markets, what policymakers’ actions mean for us and our money, how to manage our money through it.

We’re working (from home) around the clock at Ellevest to provide you the resources you need, including a pledge to answer every one of our communities’ money questions, in a variety of forums. And I’m pulling it all together here each week: a quick market update and some insights first, what we’ll be addressing at our Office Hours and workshops, and links to further information in Ellevest articles for you. I’ll be doing this each week in this new Money Mondays series.

Market insight: It’s like flying through turbulence.

After the stock market recorded its fastest move from bull market to bear market in history, last week the Dow Jones Industrial Index (DJIA) rose 13%, its biggest weekly gain since 1938. It also posted its largest one-day jump in 87 years; this is following two consecutive weeks of declines.

Much of the stock market rebound was because policymakers passed the CARES Act — the largest economic relief package in US history — as the US surpassed China as the country with the most cases of coronavirus. In case the need for it wasn’t clear: Also last week, a record 3.28 million workers applied for unemployment benefits. That’s nearly five times the previous record high of 695,000 in 1982. Let’s let that sink in: five times the previous high.

We are in truly unprecedented times.

So, what is the market telling us?

While economic activity remains on pause as much of the US stays home, the enormous CARES Act is providing a bit of short-term relief. But there’s still worry about whether the package is enough to avert steeper declines. Uncertainty and fear are the primary drivers of this market volatility — so as long as uncertainty around the coronavirus persists, the volatility will continue.

The markets’ quick rise of more than 21% over a three-day period last week led some investors to declare the end of the shortest bear market on record and the start of the next bull market. But given the uncertainty around the coronavirus, that doesn’t seem likely. Last week’s upward spike could be a “bear market rally” — a brief period during a bear market when markets rise quickly before heading back down. But we won’t know for sure until much later.

These last few weeks couldn’t be a better example of how utterly impossible it is to attempt to time the market — trying to buy at bottoms and sell at peaks. We just don’t know when the bottoms and tops happen until they’ve already happened.

Here’s what we do know

All investing entails risk. We can’t eliminate risk without giving up the potential rewards of long-term returns. That’s why we usually recommend you take care of your immediate needs — your bills, your high-interest debt, an emergency fund — before you invest. The coronavirus’s effects on the economy may have changed things for you, and immediate financial self-care should be your priority.

If you can afford to stay invested, though, all this volatility is one more thing adding to all the anxiety right now. What we can do is manage through the risk of investing by having a diversified investment portfolio, keeping a long-term view, and not reacting to the highs and lows in the meantime. It’s hard and sometimes painful, but staying the course is what has historically benefited successful investors over the long term.

Despite last week’s rise, stock prices are still down more than 20% for the year. And the way the math works is that the lower the price you’ve paid to buy stocks, the higher the potential future return. So if we’re buyers of stocks (which most of us are, if we’re investing), we should welcome the opportunity to buy stocks less expensively. That’s the case even if it turns out not to be the bottom right now.

Studies show that when recessions end and a new bull market begins, the largest share of returns comes from the bull market’s early stages. Being invested when the recovery begins can allow your portfolio to participate in those gains if they happen.

Waiting until you’re sure the recession has ended and a recovery is on the way is not only impossible, but historically very costly. We don’t know when or what kind of recovery this will be. Every crisis and every recovery is different — and this crisis looks very different from anything we’ve ever seen. But what we do know from history is that investing through crisis, recession, and recovery has been a successful strategy in the long term.

We can’t say it enough: We’re in this together.

Sallie Krawcheck Signature


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Sallie Krawcheck

Sallie Krawcheck is the Founder & CEO of Ellevest.