With the nation’s capital markets officially in “bear” territory and trading halted on the Dow Jones Industrials on Thursday after the automatic breakers kicked in due to a precipitous sell-off, nervous investors may be wondering what they should do.
Experts who spoke to The Blade Thursday offered some key advice: reassess your portfolio and your tolerance for risk, consider buying stocks that are fundamentally sound but may be depressed by panic selling — and don’t panic yourself.
“I would hedge my risk. I would reassess my portfolio and reassess my tolerance for risk and realize that the market could go down 50 percent this year,” said Gary Moore, a University of Toledo finance professor.
Mr. Moore said the three most important rules of investing are: diversify, diversify, and diversify. “The various parts of your portfolio need to be diversified against things like this,” he said.
“Hopefully most people are diversified enough that they have some fixed income, and this is why you put some of your money into fixed income,” Mr. Moore said. “You want a well-diversified portfolio and also you want to realize that if you’re willing to take the 300 percent returns we’ve gotten the last three year you might have to take a 50 percent loss for a while.”
George Damasco, a wealth adviser with MPM Wealth Advisors, of Holland, agreed that now is the time to reassess one’s portfolio and determine how much risk you can afford.
“Keep your core money in a diversified portfolio. But If you’re a gambling guy and you’ve got the tolerance to withstand volatility, there are some bargains to be had out there,” Mr. Damasco said.
“The key is staying in. When you jump on the sidelines, that’s when you step on the landmines,” he added.
In February, the Dow was boasting a nearly 50 percent gain since President Trump took office on Jan. 20, 2017. By the close of the markets on Thursday, the Dow had just a 6.9 percent gain, though it remains up nearly 16 percent since just before Trump’s election in November, 2016.
Still, fears of the expanding cases of coronavirus sent stocks on Thursday to their worst losses since the Black Monday crash of 1987.
The S&P 500 fell 9.5 percent, for a total drop of 26.7 percent from its all-time high that was set just last month. That helped snapped the 11-year bull-market run. Meanwhile, the Dow sank 10 percent for its worst day since a nearly 23 percent drop on Oct. 19, 1987.
“We were a little bit high to start off with and were probably due for a correction. But to be in bear market territory now? Not good,” Mr. Moore said.
“At this point, it’s all about what’s your stomach for risk, because we’re not in valuation mode. We’re in panic mode. It’s basically a fear market,” he said. “The truth is it’s not truly a fear market either because we’ve never had a situation before where a biologic agent shut things down.”
Mr. Moore said the problem for investors now is if you panic, there is the likelihood you’ll make the exact wrong move. For example, during the last recession a relative moved his money into bonds and stayed there way too long.
“Whereas my money tripled, he was still at a 10 or 12 percent return,” Mr. Moore said.
Mr. Damasco said his friends speculate that he’s been getting lots of calls from worried investors.
“But my response has been, ‘Not really,’” he said. “We’ve just done a really good job at preparing people for events like this. People understand that if they’re positioned properly, there's light at the end of the tunnel.”
For now, Mr. Damasco said he might tell someone to take qualified assets and consider converting them to a Roth IRA then wait out the required five years before removing money. “But really, there’s nothing one can actively do to thwart the downturn in the marketplace,” he added.
“Employ a proper re-balancing of your portfolio because this is the time to really buy low and sell high,” Mr. Damasco said, “... At the end of the day the underlying fundamentals of the economy are still pretty strong.”
First Published March 13, 2020, 11:00 a.m.
