InvestmentsRisk Management

Don’t Let Fears Dictate Your Investment Strategy

By March 12, 2020 No Comments

The Coronavirus

Of course, you should take every health precaution in order to avoid contracting this latest strain of influenza. But when it comes to your finances, should you panic like the other investors we’ve seen in the last couple of weeks, dumping stocks while markets are dropping?

History says, no.

One hundred years ago, the “Spanish flu” pandemic swept the globe, infecting an estimated one-third of the world’s population (500 million at the time) killing at least 50 million people, including an estimated 675,000 Americans. In fact, the 1918 pandemic actually caused the average life expectancy in the United States to drop by about 12 years for both men and women. Keep in mind that this was during WWI.

So, what was happening to the stock market during that time? Courtesy of Bloomberg, “The Dow Jones Industrial Average (DIA) returned around 10.5% in 1918, including reinvested dividends. In a year where the Spanish Flu killed roughly 0.6% of the population, stocks had a decent year, producing returns near their long-term average.”

But that wasn’t the only flu pandemic we’ve weathered; there were lesser ones in 1957 (“Asian flu”), 1968 (“Hong Kong flu”) and 2009 (“Swine flu”). With the exception of 2009, when we had already entered the recession, there were no concurrent stock market effects from health issues. Besides, by April of 2009, stocks had already begun their climb upwards—hailing the start of the 11-year bull run which lasted until February of 2020.

The 2020 Election

Investors are often fearful about election years. They are afraid of volatility, and afraid that the stock market will go down depending on who gets elected.

The reality is that the stock market is rarely affected by elections. The S&P 500 has had a negative return in only four election years out of the 23 presidential elections held since 1928.

The most recent one was during Barack Obama’s first election cycle. At that time—the year was 2008—the worst global recession since the Great Depression was taking place (the Great Recession)—after George W. Bush had already been in office for eight years.

The fact is that election years are filled with fear-based advertising and propaganda, but the data doesn’t support it. No matter what you believe about the opposing party’s candidate, the historical research doesn’t support the fear that they will ruin your investment portfolio. Don’t let negativity affect your returns by doing something rash; it’s best to hold steady to your long-term strategy.

Often the worst thing you can do is vastly alter your investments; for instance, selling everything and going to cash. The principle of dollar-cost averaging says that you should keep investing for the long term regardless of what the market is doing. When the market is up, you will pay a bit more, when the market is down, you will pick up some bargains. Over time, this strategy has historically proven to perform well for most long-term investors.

From Investopedia:

The goal of dollar-cost averaging is to reduce the overall impact of volatility on the price of the target asset; as the price will likely vary each time one of the periodic investments is made, the investment is not as highly subject to volatility.

Dollar-cost averaging aims to avoid making the mistake of making one lump-sum investment that is poorly timed with regard to asset pricing.

In general, if you have a low tolerance for risk or you are nearing retirement, your portfolio should be designed accordingly. Otherwise, be wary of claims in political advertising that blame (or credit) one president over another for the economy or stock market.

Contact Sylvan Financial Advisors if you would like to review your portfolio; we offer complimentary portfolio reviews, 201-282-5332.





The information in this article is provided for general information and educational purposes only. It is not designed nor intended to be applicable to any person’s individual circumstances. It should not be considered investment advice, nor does it constitute a recommendation that anyone engage in or refrain from a particular course of action.

Do not rely on this information for financial advice. Check with your CPA, attorney or qualified tax advisor for precise information about your specific situation.

All securities offered through The Investment Center, Inc. Bedminster, NJ- Member FINRA/SIPC. Advisory Services provided through IC Advisory Services, Inc.-An SEC Registered Investment Advisor. Sylvan Financial Advisors is not affiliated with The Investment Center, Inc. or IC Advisory Services, Inc.