Crops will grow back so don’t sell the farm
When a farmer has a bad year for his crop, he doesn’t rush out to sell his farm. Rather, he knows from experience that the crops will come back when whatever issue that caused their failure has passed. He also knows the economic impact of a bad year and has developed a long-term view for dealing with the natural ebbs and flows of his profession.
Long term investors enter the stock market to own a piece of the means of production. They buy into the present value of a company in anticipation of the future earnings that company represents. It takes years for companies to grow and undoubtedly, they experience good years and bad years through their lifecycle.
Looking at the stock market through the lens of the farmer right now might be beneficial to those of us (most of us!) who are watching retirement savings and other investments dwindle in the wrath of Coronavirus. There’s no denying it, the decline is dramatic. Alarm, dismay, and worry are all emotions being felt by many investors today. Others, me included, are seeing opportunities ahead, just like the farmer who anticipates the bumper crop following a failed season.
The financial fallout from Coronavirus related losses will be substantial for investors as well as for companies. Earnings will be down across the board and that will further influence stock prices. This is a bumpy ride, not unlike the meltdown of 2008, the Dot Com crash, 1987 and numerous other times. And it’s likely that extreme volatility will continue for the foreseeable future before the inevitable rebounds start to occur.
If the farmer sold his farm after a year or two of poor crops, he wouldn’t be able to harvest the rewards that come with a longer view. He wouldn’t capitalize on lower seed costs or opportunities to buy more land to grow more crops. He would miss the chance to reap the long-term gains.
Resisting the urge to get out of the market is probably the best thing investors can do right now. It’s hard to see account balances diminish. It leaves questions like “how long will it take to recover what I’ve lost?” and “will I still be able to retire when I planned?” The answers to those types of questions are varied based on the individual situation.
Your fiduciary financial advisor should have prepared for market volatility by ensuring your allocations are in line with your investment objectives and risk tolerance. They should have made sure you have availability of liquid funds and ensured that several years of distributions were kept outside the stock market. They’d have diversified your investments across various industries and businesses throughout the world to limit the downturn in any single industry and enable you to participate in economic growth in whatever industry it may occur.