By Roy Hayhurst
DALLAS — Worldwide markets have remained highly volatile in March as the coronavirus, officially known as COVID-19, has continued its spread through Asia, Europe, and the United States. Long-term retirement investors, though, should not let those fears steer them away from their efforts to invest for retirement, GuideStone® cautions.
Eleven years ago today (March 9), the market bottomed out, following the 2008–2009 market decline. During the intervening 11 years (through March 6, 2020), the market rose 452.56% — an annualized rate of 16.76%.
GuideStone chief strategic investment officer David Spika noted that an overall market decline of 10% is not unusual in presidential election years, and this year’s election cycle was expected to be more disruptive than most previous election years. Anticipating that a correction was overdue for the markets, GuideStone has consistently cautioned retirement plan investors to revisit their asset allocation in light of their risk tolerance and time horizon during the market’s sustained growth (see examples in February 2020, January 2020, and June 2019).
“We cannot be sure of the near-term ramifications of these events on the stock market and whether we will experience a quick bounce back (as we have seen during other corrections since 2008) or a longer-term downturn,” Spika said. “Two things we will be watching closely are corporate earnings growth and global economic activity, as we believe these are the most important factors in determining how stocks trade from this point forward. If the coronavirus, oil weakness, or some other unforeseen catalyst puts significant downward pressure on corporate profits, there are likely to be continued sell-offs in the market.”
That said, Spika said trying to time the market rarely works in the investor’s favor.
“Market sell-offs can be dangerous for long-term investors because they can trigger fear-driven ‘market timing’ impulses to sell out of positions,” Spika said. “History has shown there’s a real cost to trying to time the market.”
The chart below illustrates that missing the 10 best trading days in the market over the 20-year period from 2000 to 2020 would essentially eliminate an investor’s gains.
GuideStone President O.S. Hawkins echoed Spika’s sentiments.
“The minute-by-minute headlines on social media and cable news can cause fear and lead to rash decision-making,” Hawkins cautioned. “It’s important to remember that retirement investments are a long-term goal and that the market has these periods of volatility from time to time. If a retirement plan investor wants to make changes to his or her portfolio, then consider your diversification, time horizon, and risk tolerance. Then and only then should consideration of the facts, and not the emotions of the moment, drive any decisions.”
GuideStone participants can receive help with their long-term investment allocations by accessing the resources on the Retirement Planning and Guidance page, which include GuideStone’s Investment Recommendation tool.
GuideStone recommends four basic principles for retirement plan investors:
- Always focus on your long-term objectives, not your emotions. Retirement plan assets are intended to serve your needs for a long period of time. Make sure your objectives and actions are consistent with your time horizon.
- Avoid making impulsive decisions. Making changes based on short-term market moves is almost a guarantee for failure, as it promotes buying high and selling low. The performance of your account moving forward will be determined based on results of the financial markets in the future, not the past. Investors cannot sell yesterday’s losses or buy yesterday’s gains.
- Don’t count losses (or gains). Consistent contributions to a retirement plan afford investors a systematic way of taking advantage of investment opportunities as markets ebb and flow.
- Maintain realistic expectations about market behavior. Financial markets in the short term tend to fluctuate in response to social, political and economic events. However, historically, the markets stabilize and return to profitability over the long term, focusing on the underlying fundamentals.