So now it’s a bear market

It’s Wednesday afternoon, March 11. Today the stock market (however you care to define that) fell about 5%. Small caps were down a bit more, international about the same. Even a lot of bonds were down today. And it was another in a string of highly volatile days in the past few weeks.

Like many, I have been thinking about the markets, the headlines, the scary news, the precipitous drops in stock prices. Probably thinking too much, if we’re being honest. So I’ll tell you about those thoughts.

1. I think it is okay to feel scared/nervous about COVID19 stuff. While I am probably the least likely person to contract the virus and get seriously sick from it (I mean, I barely leave a 3 mile radius from my house unless I’m on a bike), it’s clear that cases are picking up steam in the US and it’s okay to be a little nervous about that. It’s likely that a whole lot of things are going to get disrupted in the next few weeks. Events from basketball games to conferences to political rallies and on-campus college classes are getting cancelled right and left. I’m not an epidemiologist and I don’t play one on TV, so I have no commentary about whether or not this is the right thing to do. People much more informed and smarter than me are working through that. But we’ll all be affected by such actions to some degree.
2. News headlines are probably going to get scarier. My county health department announced the first two presumptive positive cases here today. That makes things a bit more real, and counts of cases and fatal cases are going to go up.
3. The combination of COVID19 and an all-out oil price war between OPEC and Russia is quite the storm for financial markets. Nobody saw that coming. Don’t say you did.
4. I’ve spent years talking about our need to be aware that these things happen. Investing got easy for a while there. Buy something, it goes up. Sit on your hands, it goes up. Things were calm for a very, very long stretch. Which was great! But that isn’t forever. If earning long-term returns on your invested capital were easy, it would be a bank account. Short-term losses are the price of admission.
5. The hardest part about a very long, unusually calm bull market is that it is easy to forget how scary bear markets feel. And then, when we have one, it feels so foreign! Right now it is the easiest thing in the world to think that this one is scary and no way did we feel this nervous about the financial crisis or the bursting of the tech bubble. But I’ll tell you – I remember. I remember how scared investors were when Lehman collapsed. The panic in people’s voices when the DJIA fell below 7000 and idiots on CNBC were making DJIA 3000 calls. It was REALLY SCARY. It is scary every time. And yes, it is different every time! That’s how these things work.

So what does all of this mean for us, as investors? As retirees or those about to be retirees or those who would love the idea of maybe someday eventually being financially independent? Here is what I am pretty confident about.

1. If you have a reasonable plan in place, if you’ve done retirement planning and stress tested your portfolio and assumed that bear markets are real things, you’re going to be okay. A 20% decline in the markets is just about the most normal thing there is, regardless of its cause or its velocity. I’ve never told someone who had a solid retirement projection that it was all falling apart because of a bear market. If your retirement plan depends on there never being a bear market, that is a prayer, not a plan.
2. I do not want us to have a sense of urgency in a market environment like this. We don’t need to feel anxious about the timing of taking tax losses or rebalancing, or investing new cash. In the long run that sense of urgency will look ridiculous because we have no clue where the bottom is. Maybe it was today! Maybe it is 1 or 3 or 6 or 12 months from now. I have no clue. But anxiety and urgency and panic do not lead to good long-term decision making. And sense we knew that a bear market was part of our plan, we don’t have to take panicked action in the middle of it.
3. Volatility clusters in times like these, so it is reasonable to expect we aren’t done with days of +/- 3%, 5%, etc. Clearly, in the short run, markets are not rational (let’s remember that markets are people). There is going to be a lot of noise.

Lastly: trying to stay calm and rational and not panicked when headlines are screaming and markets are tanking can be exhausting. It can take a lot out of all of us mentally and emotionally. Sitting and staring at headlines and red flashing numbers is really bad for your mental health. Take a minute to recognize if you are spending too much time reading the news, watching the virus spread, watching oil prices and stock prices and interest rates tank. If you have a plan, you likely aren’t going to be reacting to these things on a day to day basis (or at least you should not be!). Give yourself a break from all of this. It is not going to be the end of the world as you know it.