Episode #22: 4 Things to Take Into Account During a Market Downturn

market downturn

March 24th, 2020

With the panic and hysteria that’s surrounding the Coronavirus, everyone is worried about the stock market. Is the market going to continue to plummet? Will we go into a recession—or worse, a depression? Is our economy going to hold up? In this episode, I’m going to lay out where the stock and bond markets are today, March 10th, and 4 things to consider during this market downturn. My goal is to educate you on where we are and possible routes to take as we move forward in this uncertain time. 

Outline of This Episode

  • [0:33] Panic and hysteria surrounds the Coronavirus
  • [2:20] The Big Scary Disclosure
  • [2:50] Where is the stock market at? 
  • [6:21] The sudden drop in oil prices
  • [7:55] How the coronavirus will impact the stock market
  • [11:07] Where bonds are at right now
  • [15:28] The value of the two markets
  • [19:12] #1 – Don’t panic sell
  • [23:25] #2 – Look for opportunities
  • [27:17] #3 – Reassess your current risk-tolerance
  • [29:41] #4 – Look at the dividends you’re earning

The stock market is DOWN from its 52-week high

As of the date of recording this episode, the stock market has hit a historic downturn. It’s the biggest point downturn in history (since recording, it has dropped even more). 

  • The Dow Jones is down over 2,000 points (19%). 
  • The S&P 500 is down 19%.
  • NASDAQ is down 19%
  • The Russell 2000 Index is down 23%

None of these numbers are surprising. No one knows what’s going to happen with the Coronavirus (now labeled a pandemic). People are now being banned from travel and businesses are shutting down. Wall Street is afraid people will stop spending money. 70% of our economy depends on us going out and making purchases. If we aren’t spending money, the economy might suffer. 

The bond market seems to be holding steady

Bonds can sometimes be the forgotten asset class. They provide a level of safety when the stock markets are going crazy—like they are now. Right now, the majority of bonds are up (as of March 10th).

  • The Vanguard Long-Term Treasury ETF is up a whopping 40%
  • Vanguard Total Bond Market Index Fund is up 10%
  • The Bloomberg Barclays US Aggregate Bond Index is up 12%

At this point, bonds are holding up well and are thriving. Interest rates keep falling, and as they fall bond values tend to go up. Just to give you a bit of perspective, if someone were to outright buy the stock market, it’s valued at 70 trillion dollars. The bond market is worth 100 trillion dollars—significantly larger than the stock market. 

The 4 things you need to consider during a downturn in the market

There are 4 things that you need to keep in mind when the stock market is in a downward trend:

  1. Don’t panic sell. I get it—it’s a national emotional reaction to want to get away from the thing that’s causing the negative emotions. It’s normal to feel anxious. But if you sell all of your investments, when do you get back in? No one alive knows where the bottom is. If you sell it all, it’s hard to know when to buy back in. No one knows when the dust will settle.
  2. Look for Opportunities. Stocks are down right now, but some of them may be smart to buy into before the market begins to climb again. Listen to the episode for 2 stocks that aren’t necessarily performing as poorly as the rest of the market—and 2 that are doing far worse. 
  3. Reassess your current risk tolerance. I use a program that sets an actual number from 0-99 that shows your level of risk. A number like 25 is low-risk, while a number like 90 is considered high-risk. Sit down with your financial advisor and see if you need to make changes. The higher-risk your portfolio is, the more it could drop in rough times. 
  4. Look at dividends you may be earning. While they’re not guaranteed (unless it’s a CD) some stocks (such as Procter & Gamble and Caterpillar) will continue to pay their dividends even when the market is down.

We are entering uncertain times. We don’t know which direction the stock market will go just as we don’t know how the coronavirus will travel. I caution you to focus on the facts and make smart—not panicked—decisions. Listen to the whole episode of Making Finance Fun for details on the market and what’s influencing it. 

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