I know that Covid-19 has been on everyone’s mind. In fact, it’s easy for it all to become a little too much. This weekend, I decided that I had definitely been on my phone for far too long and needed a break.
I’m a teacher, so the week that the WHO declared a pandemic and everything started shutting down was the week that my screen time report told me my screen habits had increased by 50%. The following week, it went up another 25%.
So I won’t add anymore to the noise that surrounds Covid-19, except where interests in this blog lay. Which is why I want to outline why you want to stay the course when it comes to investing in the stock market during events like this.
I can say is that I’m really glad I’ve already seen a stock market crash in my adult life. Now that might seem like a weird thing to say, but here’s why.
I already had some money invested at the time of the housing crash in 2008. And I remember it being bad. They just kept talking about how it was going to tank, and it did. It lost 50% of it’s value in a moment.
But thankfully, I had already done enough research and learned from enough great teachers that the best thing to do in a crash is just to sit and wait.
If you’ve done your homework, and the investments that you’ve made are in dependable mutual funds that have a long track record, then you must hold.
You see, when you sell your shares of a mutual fund when the stock market loses so much of it’s value, you’re out. And now you’ve locked in those losses. There’s no way that you can recover them.
However, if you’re in good mutual funds with a long track record, and you hold, the stock market does come back.
So I’m really glad that this was already a lesson that I’d learned and got to witness back in 2008.
In fact, I’m very confident that the market will return. I know that there has been a lot of fear out there, and I don’t want to downplay that. But I do want to add to the voices that have been out there saying that things will be ok.
The Market Will Recover
I went back to look at a little data on how we did from 2008.
VTSAX, which is the Vanguard total stock market index fund that I’m invested in, was worth around $31 a share in August of 2008. That means that it would cost you $31 to buy one share into that index fund. So, what people do when they are investing, like in a retirement account, is use their money to buy a lot of those shares of that index fund.
At it’s lowest, in February of 2009, it was worth just under $17. So that would mean that you put all of this money to buy something that was worth $31 and now each one is worth only $17.
I admit, that’s scary. And it’s why there’s a whole lot of fear that surrounds investing in the stock market. It’s why you hear people accuse investing in the stock market to being like gambling.
So here’s what happened that’s really sad. People freak out when the stock market has a huge crash like that, and so they sell all of their shares. So now they’re selling their shares for $17 instead of $31 and they walk away with huge losses.
How much money are we talking about?
Let’s say that you’d invested over a long time and accumulated 16,000 shares. If you have 16,000 shares of a fund that is worth $31, then you have $496,000 in your account. Not chump change! Then, if you sell them for $17, guess what? You’re only going to get $272,000 from those investments. You literally lost hundreds of thousands of dollars when you sold.
But here’s the important point. The market recovered.
It always has. In every single instance, the market has recovered.
So if you had held on to your money in 2008, and didn’t sell, how long would it have taken your index fund to be worth $31 again?
About 2 years. That’s it. Depending on how you feel about it, that might seem like a long time, and it might seem like a short time. But 2 years. That’s it. It was around December 2010, when the VTSAX index fund was worth around $31 again. It actually got close in April of 2010 before going down again for a short time.
But if you held on to your shares instead of selling it, your losses from the 2008 great recession?
$0
In fact today, before we lost so much value, VTSAX was worth $83.57 on February 14th, 2020. Look at how far our stock market has come from $31 in 2010?
On Saturday, March 21st, it’s worth $56.04. It’s still worth far more than the $31 that it was worth a decade ago.
One of my favorite Dave Ramsey quotes is that “the only people who get hurt on a roller coaster are the people who jump off.”
I love roller coasters. For some reason my fear of heights doesn’t translate to a fear of roller coasters. But they can be a wild ride.
So can the stock market, but if you just hang on, you won’t get hurt.
What Should You Invest In?
If you’re invested in a mutual fund with a good strong track record, then right now, you don’t do anything.
If you have an investment professional that you invest your money with, he’s probably telling you to hold as well.
As for me, I hadn’t even looked to see how my money was doing before I sat down to write this article. And the reason for that is that I invest in index funds.
I talked about why I love index funds here, but the gist is that index funds are a mutual fund that isn’t picked by a person. The stocks in the fund automatically match a broad selection of stocks that are found in the market.
My favorite is the Vanguard Total Stock Market Index, or VSTAX. This fund is going to match the market, so I don’t have to be afraid of it tanking and not recovering. But this fund is just a stock fund, and it will be volatile. That means that there’s going to be a lot of ups and downs along the way.
If you’re knew to investing, the index fund that I recommend is the Vanguard Target Date Fund for your retirement year. Since I will be retiring around the 2050, I would invest my money in the Target Retirement 2050 Fund, VFIFX.
This fund automatically includes my favorite broad US stock index fund, which is the VSTAX, but it also has a balance of other funds to further diversify your investments. Remember that diversifying is the word to describe that you have your money in a lot of different places so that it lowers your risk.
Some people will want to work with an investment professional, and if that’s you, that’s great.
However, you can do this.
You can invest on your own and by doing so, keep the cots of investing way low.
The easiest way into the game is by investing in your retirement year’s target date fund. Then, if you want to get more advanced, you can start selecting your own mix of index funds.
But investing does not have to be super complicated, and it does not have to be super scary.
So what are your questions when it comes to investing? Is there something that’s still making it hard for you to jump in the game? Reply to any of my emails to let me know.
Jared
Disclaimer: All investing is subject to risk. I am not a financial professional. The ideas contained in this blog are strictly for educational purposes. You assume full responsibility for any actions you take.
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