158 | Coronavirus and Your Money

Welcome to episode 158 of The Retirement Years on Profit Boss® Radio! In this short episode, we’re talking about what’s happening in the stock market in the aftermath of the coronavirus outbreak. 

Unfortunately, the coronavirus (COVID-19) is here. My heart goes out to all of the individuals, families, communities and countries that have been affected. Many of us remain on high alert, myself included, because we are the parents or children of immune-compromised individuals who are especially susceptible. The purpose of today’s episode is to help you make sense of what’s happening in the investment markets recently and in the near term future, so that instead of focusing on your money, you can keep your focus on remaining healthy.

It’s definitely true that companies that depend on global travel and complex international supply chains could be in serious trouble. But how will this outbreak affect you and your money? 

If you’re invested in the stock market with a diversified basket of investments designed to serve your needs and meet your timelines, your accounts are probably down. As you watch values drop, it’s easy to get scared and think to yourself, “Wow, I need to sell before this gets worse.” That’s a normal feeling, and I experience it too! 

However, trying to time the market is what the best investors in history have called the loser’s game – and I explain why in today’s episode. 

It’s important to note that temporary declines are not rare. Since 1927, there have been 158 2-day periods where the market has declined 4% or more, 49 2-day periods with a decline of 6% or more, 15 2-day periods with a decline of 8% or more, and 5 2-day periods with a decline of 10% or more. Further, the S&P 500 is higher now than it was after downturns following past outbreaks like SARS, Avian Flu, and Zika. So, have no fear, this too shall pass!

Beware media magnification! If you rely on the national financial news media for financial advice, they’ll have your emotions whipsawing. I design Profit Boss® Radio to be your voice of rationality and even-handed, evidence-based wisdom. 

If you want to better understand what’s going on in the markets and make better sense of the story the media is trying to spin right now, you don’t want to miss this episode. Tune in to Profit Boss® Radio today!

Here’s what you’ll find out in this week’s episode of Profit Boss® Radio

  • What the coronavirus is, who is at risk, and why it is impacting the markets so significantly.
  • Why watching the markets go down right now could be an unfamiliar feeling – and why pulling your investments out is a surefire way to lose money.
  • How the media assigns causality to market events, and why no one really understands why the market moves when it moves this fast.
  • Why predictions have so little bearing on the stock market – and why risk is already reflected in stock values.
  • How to remain calm and confident that the markets will recover.

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Resources and Related Profit Boss® Content

Call for Listener Stories

Hey Profit Boss® Radio listeners! If you reach a financial goal you’re proud of, tell me about it! I will continue to share listener win stories throughout 2019. Remember, the Profit Boss® community is here to support you and that includes celebrating with you when you accomplish something incredible. 

  • If you crush a specific financial goal, I want to hear from you.
  • If you’re thankful for something that has happened in your financial life or career, I want to hear from you.
  • If you are making big financial or career plans, I want to hear from you!

Your financial success is possible and so many of you are already making that a reality! So, don’t keep your wins to yourself! Share them with me so that I can air them throughout the year on Profit Boss® Radio.

Email your audio clip to [email protected]. And we’ll be in touch if we plan to air your story. Thanks, ladies!

#AskHilary

And let’s not forget that this show is powered by you and your stories and questions. Every month I’ll be doing an #AskHilary episode where I answer listener financial questions.

  • So, what’s that top of mind money question that’s been pinging around in your brain?
  • Where have you been stopped?
  • What have you been arguing with your spouse or significant other about?
  • What tip or tool aren’t you sure about?
  • Do you have questions about saving? Spending? Budgeting? Investing?

Pick up your mobile phone right now. Yes, right now. And open your voice recorder app. Yep, go ahead and open that app and record yourself asking me that question. Just say your name, first name only is okay, and then what city you’re from, and then ask away.

Anything you want to ask. And once you’re done recording, export that beautiful little recording and email it to [email protected]. I can’t wait to hear your questions!

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Transcript

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Hilary Hendershott: Hello there, profit boss. Today is a quick and timely episode I’m recording because of what’s happening in the stock market with the coronavirus event. I am with my family working from Puerto Rico. We are going to be here for 12 weeks in the spring of 2020 as I record this. Today is Monday, March 2, 2020, and this is all part of a greater plan to enjoy life and travel and have flexibility. I personally don’t like working from the beach. I know that’s a big thing people talk about. I can work from the beach. Well, I use a laptop and I don’t like sand in my keyboard. But Puerto Rico is of course very near the beach. I’m very close to the beach right now and we’re in a place called Dorado Beach and it’s a beautiful resort and I will be telling you more about it as time goes on. If you’ve been listening to the show for a while, you know that in 2018 my daughter, Harlan, was diagnosed with leukemia. And just a quick update, she’s doing really well. She’s got her hair back. She’s on three or four different medications while we’re here. 

She’ll be on medication until the end of this year but she’s thriving. She’s happy. She’s just really, I mean, it sounds trite but she is the light of my life. 

 

We are gearing up for the 50K Wealth Multiplier Experience Coaching Program coming in July of 2020. And I have been speaking to different groups all over the country. We will be offering the cohort coed this year, so we’ll be accepting men and I’ve been speaking with entrepreneurial groups and women’s groups about my own financial turnaround. If you haven’t been listening to the show for a while many years ago, I found myself if you include the value of my mortgage, $600,000 in debt and I have shared my financial turnaround and the seven steps to wealth that I used to literally transform my financial life. My business is a seven-figure business. My husband and I have a multiple seven-figure net worth and I share all those numbers totally transparently when I talk with groups, and it just is really powerful because no matter where you find yourself financially, I’ve been there or I know someone who’s been there. So, it’s a great way to connect. And if you’d like me to come speak to your group, we’d love to hear from you at [email protected] Just to give you some high-level numbers, the first time we ran the 50K wealth multiplier experience, we raised nine women’s net worth by 1.5, more than $1.5 million and I’ve shared about that on the show before. You can download the white paper in the show notes from today’s episode but I am going to get right to the topic of today’s episode.

 

Let’s talk about the coronavirus. Coronavirus is here. The technical term for coronavirus is COVID-19. It’s a respiratory disease first detected in China, but now it’s spreading globally. So, the data I’m reading say that the virus appears to be about 1% fatal, so 100 people get it, 1% of those people will die and from what I’m reading, that tends to be people who are already either sick or immunocompromised. That’s the facts and that’s really all I’m going to say about the health aspects of this. There is a lot of good advice being published about it. So, go to the show notes for today’s episode, link to the things the CDC is recommending we all do and read that firsthand. Let’s talk about coronavirus and your money. Now, I have a legal disclaimer that I read at the end of every episode, but I’m going to add another one right here because I don’t have any idea what’s actually in your portfolio. And my message today is philosophically correct assuming that you have a well-diversified basket of investments that’s appropriate for your goals and timeline. So, if all that’s true, this message applies to you. 

 

I met someone last week who has their entire nest egg in their company stock and it’s $1.5 million. And it’s one of the Silicon Valley giants. I’m not going to say which one but this message would not be accurate for that person. American Airlines has grounded dozens of jetliners because they’re canceling international flights. So, of course, if your portfolio is heavy in American Airlines, you’re just in trouble, my friend. Any company that depends on a healthy amount of global travel to be profitable could be in serious trouble right now. Okay, so caveat communicated. Yes? Don’t make any investment decisions based on what I say today if I don’t know you. Thank you. So, as I record this episode, the stock market is down approximately 10% assuming you’re invested in the market, which is one of the things I talk about a lot on this show. I think you should be invested in the stock market. There’s a lot of real data that says you should be invested in the stock market. And I’m especially interested in empowering women to invest more in the stock market and build wealth. 

 

So, assuming you’re invested in the stock market, your accounts are going to be down something similar to what the stock market is down. So, it will probably change in between the time I record this, and we get it aired through iTunes and the other channels, but your portfolio is probably down. And it is always scary to watch account values go down. I mean, we’ve been in the middle of a 10-year bull market, and I do think, I think some people have forgotten that the market ever goes down. So, this could be a really unfamiliar feeling for people. And the media says that it’s all about the coronavirus, but the first thing you want to understand is that nobody knows why the stock market moves when it moves quickly like this. So, the media assigns causality and I’m not saying they’re right or they’re wrong, but in fact, they don’t know and nobody knows why the market has moved. So, there’s no oracle of this information. The media just latches on to the most likely reason. So again, I’m not saying this isn’t happening because of the coronavirus. I’m just saying that it’s possible that some of this is not all caused by that. 

 

When global events like this occur, there are groups of speculators who do what’s called shorting the market. It’s a bit like putting your chips on the do not pass line at the craps table. So, what they’re doing is betting that the market is going to continue to go down and this accelerates the decline. You remember the Hollywood movie that came out after the financial crisis, which was called The Big Short that didn’t refer to short people or coming up short. It was referring to one hedge fund manager’s successful bet that the markets, that the mortgage market specifically were going to take a dive. So, he looked at what was happening as interest rates were low and the real estate market was sailing and he said, “I can see what’s going to happen here. Everything is going to go down quickly.” He shorted the market to make money as it declined and he won big. By the way, as far as I know, that particular person hasn’t won a bet since then. So, he’s no Nostradamus. He just got really lucky. But that’s what shorting is, and shorting is probably making the problem worse. 

 

If you open up your accounts and see the values going down, I think the very logical response is to think, “Wow, I really need to sell out while this thing gets figured out.” So, your fear response gets triggered and you want to get out. That’s totally normal. It’s totally human. I experience it too. It does happen to me, believe me. However, trying to time the markets is what many of the best investors in history have referred to as the losers game. Why? Because you have to be right on both sides of the trade. So, first of all, it’s not accurate to say that because the market went down yesterday, it’s going to keep going down today. You never know when it’s going to turn around. Markets are forward-looking. They take all known information into account pretty much immediately so when the market closed yesterday, its prices already included all of the known possibilities and likelihood that the coronavirus will continue to spread globally. I think this part is really difficult for people to internalize. I hear people talking about their predictions for the future as if those predictions have any bearing on the stock market. 

 

So, if you think it, there’s an analyst somewhere who has already thought it and therefore the risk of it is already reflected in the stock values. Everything we already know is totally incorporated into the stock market almost on an instantaneous basis. But let’s just say you do guess correctly. The stock market went down yesterday so you make a decision to sell today and the market goes down. You feel like a winner. You won the bet. You predicted the future. But there you are with all your money in cash and now what are you going to do? Because you can’t keep your money in cash forever if you want that money to grow. You know cash loses value over time. So, let’s just say you wait out the crisis. Cash is better than a falling stock market, right? So, you wait for the thing to turn around and for the market to come back up. And once the market has fully recovered from the coronavirus scare, it’s reaching new heights like it always does and you buy back in. Guess what? You lost.

 

You lost money. Say, just to use round numbers from 120, I know your account is not worth 120. Let’s just use round numbers. Maybe it’s 120,000. Maybe it’s 1.2 million. Maybe it’s 1,200. I don’t know. But let’s just use round numbers. Say it went from 120 to 110 and that’s where you sold out. Now, it’s at 110 and you have $110 in cash in your account and you wait till the markets at 125 and you buy back in. You’ve lost $15. You should have just stayed invested and waited through the temporary decline and been patient. You wouldn’t have lost that money. And that’s the part most market timers don’t get right. One thing to keep in mind is that temporary declines are totally normal. In the US, according to the Fama-French library, there have been 158 different two-day periods where it declined 4% or more, 49 two-day periods where it declined 6% or more, 15 two-day periods where it declined 8% or more and five two-day periods where the market declined by 10% or more. So that means, for example, declines of 6% or more over a two-day stretch tend to occur about every two years. 

 

The market does tend to go up over time and it has a history of sharp temporary declines. So, this isn’t rare. And also think about other outbreaks in the past. There was SARS in ’03 and six months after that the market was up 18.6%. There was the avian flu in ’06 and six months after that the market was up 11.9%. There was Zika in 2016 and six months after that the market was up 14.2%. The market absolutely does recover. Not only that but on the first day of the SARS outbreak, the S&P 500 closed at 855.7. Seventeen years and many viral epidemics later, today as I record this, the S&P 500 sits at 3,010.83, more than 250% higher. So, I’m confident that you see where I’m going with this. I think that it can be compelling to think that this time is different, but I urge you to remain confident that we will recover. That’s the conclusion is that none of us have knowledge nobody else has, which means there’s no reason to think you can out trade the traders. So, get yourself in the right portfolio for your long-term goals and ride the ride. 

 

Okay, profit boss. No MoneyWise segment today. Thank you for listening. If you have questions, let us hear them at [email protected] Otherwise, thank you for staying subscribed to Profit Boss Radio.


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Disclaimer

Hendershott Wealth Management, LLC and Profit Boss® Radio do not make specific investment recommendations on Profit Boss® Radio or in any public media. Any specific mentions of funds or investments are strictly for illustrative purposes only and should not be taken as investment advice or acted upon by individual investors. The opinions expressed in this episode are those of Hilary Hendershott, CFP®, MBA.