At the start of 2020, our investment
accounts surpassed 550K and I began to daydream about an early
retirement. Our asset allocation had
gotten a bit out of hand with our 90% stock / 10% bond portfolio and I sold
around $50,000 worth of equities to get into bond funds. I had a big smile on my face when I checked our portfolio on February 19th and saw this:
When I checked our portfolio
on February 27th, that big smile turned into a frown after seeing this:
Our net worth took a bit of a
tumble all of a sudden. For those of you
that enjoy watching the stock market regularly, you’ve probably noticed that
the markets contracted ~8% over the last 2 weeks (at one point the market
dropped ~15%). Of all the reasons the
stock market could have experienced a pullback, the coronavirus (COVID-19)
seems to have struck with little warning.
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S&P 500 returns over the last 6 months |
I first read this fun
post on Bogleheads on February 5th, 2020 where user CnC shared
that he was going to time the market by moving some stocks into bonds. China had begun to quarantine whole cities
and pausing their economy. Over time,
I’ve seen many of these types of posts on Bogleheads, where a user will
announce that they are calling the top of the stock market, selling all of
their stocks and going into bonds or cash equivalents. The trend over the last few years is that these
market timers end up sitting on the sidelines and missing how fast the markets
recover.
There has suddenly been a surge
in public hype and fear. While I do not
actively try to follow the news, it’s hard to get away from hearing constant
updates about this new virus. Many
people are getting sick and some are dying.
My neighbors and coworkers can’t stop talking about it. Entire industries have been put on hold over
this virus scare. Flights are being
cancelled. Conferences and musical
festivals have been cancelled. Movie
filming and movie premiers have been cancelled.
One continuing education conference I was scheduled to attend in March
has been cancelled. Many business
activities have come to a halt.
My mother called me a few
days ago in a state of panic making sure I was always washing my hands, and advised
me to avoid shaking my patients’ hands as well.
My mom has been hunkered down in her home and will only head to the
grocery store and back, masked up and wearing surgical gloves while she’s
out. I go to Costco every 1-2 weeks to
stock up on everyday items. On my most
recent visit, Costco was completely sold out of many basic items such as toilet
paper, paper towels, hand sanitizers, and bottled water. There is a new level of hysteria courtesy of
the news media. The fear is palpable.
Investors are definitely
spooked. The markets have been ending up
mostly in the red over the last 2 weeks with significant volatility along the
way. Some stocks in certain industries
have been getting hammered, such as airline, cruise, and hotel stocks. The overall market will be down 3% one day,
up 2% the next day and then down another 3% the day after. The stock markets hate uncertainty, and
reacts wildly in response. Losing money,
even if on paper, hurts. In 2 weeks I’ve
seen our portfolio drop by over $52,000!
It’s rebounded some since then.
The famous investor Warren
Buffett once said that it is wise to be “fearful when others are greedy and
greedy when others are fearful.” Is it
time to be greedy or is it time to be fearful?
Is the coronavirus the fuse that lights the fire for the upcoming stock
market crash and global recession? Or
will this new pandemic burn itself out like other similar viral scares (SARS
and MERS) of the past? While many countries
such as the US, Italy, South Korea and Iran are just starting to see the effects of the crisis, new infections in
China (the epicenter of the outbreak) seem to be declining. If one can imagine this coronavirus spreading
as a storm, then we can see that this storm started in China and has moved
on. This storm too shall pass.
Stock market pullbacks like
this test our chosen asset allocations and behavioral weaknesses. No one knows what the future will hold for
this virus, our local/global health and/or the stock markets. What this recent market drop has taught me is
that our asset allocation of 90% stocks and 10% bonds is too aggressive. I never used to get too worried about drops
in the stock market when our portfolio balance was at 100K. Things are different now that our portfolio balance
is over 500K. When this whole ordeal
first started, we took some money and moved it into bonds before things really
got bad. We now have a more conservative
asset allocation of 60% stocks and 40% bonds. As the stock market has been dropping, my bond
fund values have been surging. While
stock market rides can be turbulent, bond funds smooth the ride.
The market has lived through
many setbacks including recessions, September 11, 2001 attacks, the dotcom bubble, 2008
housing crisis and more - and has always come out reaching new all time
highs. Time in the market has always
proved to be a better strategy than timing the market. I’m no expert but my guess is that we will
probably have a rocky (volatile) few months followed by a quick market recovery
as the coronavirus burns itself out. Or
who knows, the shit may hit the fan and our world’s situation devolves into
social and economic collapse. In any
event, we will continue to invest through the market downturn by dollar cost
averaging our contributions and regularly exchanging bond funds for stock index
funds. We’ll continue to live a
purposeful and happy life, wash our hands frequently and try to avoid touching
out faces.
I'll continue to update our financial progress over time. Here's our portfolio balance today:
Here are some great articles
to read regarding stock market crashes and more level headed responses:
Read about Bob, the world’s
worst market timer:
https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/
https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/
Mr. Money Mustache’s take on the current situation:
https://www.mrmoneymustache.com/2020/03/03/coronavirus-stock-market/
The White Coat Investor on market timing:
https://www.whitecoatinvestor.com/should-i-try-to-time-the-market-friday-qa/
https://www.mrmoneymustache.com/2020/03/03/coronavirus-stock-market/
The White Coat Investor on market timing:
https://www.whitecoatinvestor.com/should-i-try-to-time-the-market-friday-qa/
Here's a bonus fun discussion with Reddit
users commenting on uplifting news regarding the COVID-19 outbreak: https://www.reddit.com/r/AskReddit/comments/fezt5a/what_is_some_uplifting_news_about_the_covid19/?utm_source=share&utm_medium=ios_app&utm_name=iossmf
Here's a look at how the S&P 500 has performed over the last 50 years:
Here's a look at how the S&P 500 has performed over the last 50 years:
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The recent pullback looks like a tiny blip on this chart. |
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