"Should I sell everything?"
I get this question a lot lately. The last few months have been a really scary time with the economy being shut down due to COVID-19 and fears of a second wave of infections, violent clashes in the streets and the stock market gyrating wildly.
Since no one can predict the future accurately, I am unable to give the answer most want, an unequivocal “Yes” or “No.” All I can offer is a calm conversation examining basic questions and strategies. What are the key questions?
1. Will COVID-19 end the world? No.
In fact, notwithstanding the news headlines, the spread of COVID-19 has likely peaked. Right now, credible (non-political) folks with reams of scientific data are making this case.
2. Will the US economy collapse? Not likely.
Clearly, some industries have been badly hurt – we hear about those on the news. Travel related companies are an example. What we hear less about are those industries which have benefitted. Think about the booming industry for home food delivery.
Plus, the government has pumped huge amounts of economic stimulus and money into the system. The combination of American capitalism and government stimulus will likely keep the economy afloat until it is clear that the COVID-19 medical risk is behind us.
3. Has this crazy period altered basic investing rules? No.
In fact, huge price swings and selling pressure highlight the fact that the basics work. The strategy of: 1. Buying a diversified portfolio, 2. Avoiding excessive debt and fees, and 3. Investing for the long-term (not day trading) works.
4. Is it a good time to invest in the stock market? Probably.
Getting COVID-19 in the rearview mirror and ongoing government fiscal stimulus combines for pretty good odds that the next 6-12 months should generate a positive return for the US stock market. At all times, even the crazy ones of today, investing is about making decisions in the context of uncertainty. There are never guarantees. Certainly, the odds today are no worse than normal: historically two-thirds of the time US stock investors have received a positive profit.
I am a fan of the US form of capitalism and rule of law; not because either are perfect – far from it. I am a fan because there has yet to be an alternative economic system that has produced better results. Letting normal, everyday folks follow their “enlightened self-interest” has always proven better and freer than a centralized government or dictator making all the decisions.
Be positive despite the crazy times. Investing in our economy and stock market is a pretty good bet. Wear a mask and wash your hands, but stay calm. This time is only different because it is happening to us.
Roadside Scholar Tip: Stay Positive. Test Negative.