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How to Stop Worrying and Love a Falling Stock Market How to Stop Worrying and Love a Falling Stock Market
(3 days later)
When the stock market falls as far and as fast as it has in the last three weeks, it is perfectly natural to be terrified.When the stock market falls as far and as fast as it has in the last three weeks, it is perfectly natural to be terrified.
It requires a leap of faith just to place hard-won savings in such an abstract, ephemeral thing as a share of stock or an exchange-traded fund. Instead of spending on something concrete that can be enjoyed immediately, investing means putting money into what is, ultimately, a notation in a brokerage account displayed on a computer screen.It requires a leap of faith just to place hard-won savings in such an abstract, ephemeral thing as a share of stock or an exchange-traded fund. Instead of spending on something concrete that can be enjoyed immediately, investing means putting money into what is, ultimately, a notation in a brokerage account displayed on a computer screen.
And now, in just a handful of days, a meaningful chunk of it has been wiped out. If your primal brain sees that and wants no part of the stock market anymore, it is completely understandable.And now, in just a handful of days, a meaningful chunk of it has been wiped out. If your primal brain sees that and wants no part of the stock market anymore, it is completely understandable.
It’s also probably a mistake, assuming the question involves long-term savings. People have a tendency to move money out of stocks after steep drops, but often fail to jump back in quickly enough when the market finally bottoms out.It’s also probably a mistake, assuming the question involves long-term savings. People have a tendency to move money out of stocks after steep drops, but often fail to jump back in quickly enough when the market finally bottoms out.
There’s a way of thinking about stocks that can help you avoid that fate. It’s a mental trick that makes it easier to stomach those terrifying days when your 401(k) plunges. And it has roots in the math of what you’re buying when you invest in the stock market.There’s a way of thinking about stocks that can help you avoid that fate. It’s a mental trick that makes it easier to stomach those terrifying days when your 401(k) plunges. And it has roots in the math of what you’re buying when you invest in the stock market.
When you buy a share of stock, you are buying a claim on an infinitesimal portion of the profits of that company for the rest of time. When you buy a broad index mutual fund or E.T.F., you are essentially buying a share of the future profits of all major corporations.When you buy a share of stock, you are buying a claim on an infinitesimal portion of the profits of that company for the rest of time. When you buy a broad index mutual fund or E.T.F., you are essentially buying a share of the future profits of all major corporations.
The way those profits will be delivered to your pocket will vary. Some of it will be paid directly to you in the form of a dividend. Some will be held by the company or used to buy back shares, which materializes in the form of a higher stock price. And some will be reinvested by the company’s managers to drive growth.The way those profits will be delivered to your pocket will vary. Some of it will be paid directly to you in the form of a dividend. Some will be held by the company or used to buy back shares, which materializes in the form of a higher stock price. And some will be reinvested by the company’s managers to drive growth.
We may not know exactly how much money big companies will be making in a decade or two, or what technologies and business strategies they will use to make it, or which companies will account for more or less of that total than they do now. We don’t know how severe a potential coronavirus outbreak this year will be, or how long it will last, or how it will affect the near-term performance of corporate America.We may not know exactly how much money big companies will be making in a decade or two, or what technologies and business strategies they will use to make it, or which companies will account for more or less of that total than they do now. We don’t know how severe a potential coronavirus outbreak this year will be, or how long it will last, or how it will affect the near-term performance of corporate America.
But if you look over the sweep of history, one lesson is clear: Earnings tend to rise over time, as the world economy grows. However, the price an investor has to pay to get a slice of those earnings can swing wildly, much more so than any plausible forecast of that long-term future does. And rarely has that been more true than in the last three weeks.But if you look over the sweep of history, one lesson is clear: Earnings tend to rise over time, as the world economy grows. However, the price an investor has to pay to get a slice of those earnings can swing wildly, much more so than any plausible forecast of that long-term future does. And rarely has that been more true than in the last three weeks.
“Earnings have been hugging a trend since 1950,” said Robert Shiller, a Yale economist and Nobel laureate. “The market tends to be more volatile than the earnings. So there’s something going on other than the forecasting of future earnings.”“Earnings have been hugging a trend since 1950,” said Robert Shiller, a Yale economist and Nobel laureate. “The market tends to be more volatile than the earnings. So there’s something going on other than the forecasting of future earnings.”
And that something is the cycle of ebullient optimism and abject fear that we often find in financial markets.And that something is the cycle of ebullient optimism and abject fear that we often find in financial markets.
Which condition applies at any given moment involves a lot of factors. It’s mostly psychology (are people feeling more greedy or more fearful?) combined with some high-level macroeconomics (is there a glut or shortage of global savings?), with some mechanics of financial markets tossed in (are big hedge funds being forced to sell shares to meet other financial obligations?).Which condition applies at any given moment involves a lot of factors. It’s mostly psychology (are people feeling more greedy or more fearful?) combined with some high-level macroeconomics (is there a glut or shortage of global savings?), with some mechanics of financial markets tossed in (are big hedge funds being forced to sell shares to meet other financial obligations?).
The moments when sentiment shifts from optimism to fear, like the last few weeks, are scary when you have an accumulated pile of savings declining in value. But it also means that the value you’re getting on any future earnings has increased.The moments when sentiment shifts from optimism to fear, like the last few weeks, are scary when you have an accumulated pile of savings declining in value. But it also means that the value you’re getting on any future earnings has increased.
Typically, stock analysts think of valuations in terms of the price-earnings ratio, but it can be clarifying to invert it. So, for example, at the record market high on Feb. 19, this earnings-price ratio was 3.1 percent for the S&P 500, meaning that every $100 invested in an S&P index fund bought interests in companies that accounted for $3.10 in profits over the previous year.Typically, stock analysts think of valuations in terms of the price-earnings ratio, but it can be clarifying to invert it. So, for example, at the record market high on Feb. 19, this earnings-price ratio was 3.1 percent for the S&P 500, meaning that every $100 invested in an S&P index fund bought interests in companies that accounted for $3.10 in profits over the previous year.
With the sell-off through Thursday, that number had risen to 4.2 percent — last year’s earnings were unchanged, but it was a lot cheaper to buy a share. In the same span, though, the yields on longer-term Treasury bonds fell sharply. A 10-year bond paid 1.43 percent on Feb. 19 and 0.45 percent at Thursday’s close.With the sell-off through Thursday, that number had risen to 4.2 percent — last year’s earnings were unchanged, but it was a lot cheaper to buy a share. In the same span, though, the yields on longer-term Treasury bonds fell sharply. A 10-year bond paid 1.43 percent on Feb. 19 and 0.45 percent at Thursday’s close.
Updated June 5, 2020Updated June 5, 2020
A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.
The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.
Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission.Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission.
Exercise researchers and physicians have some blunt advice for those of us aiming to return to regular exercise now: Start slowly and then rev up your workouts, also slowly. American adults tended to be about 12 percent less active after the stay-at-home mandates began in March than they were in January. But there are steps you can take to ease your way back into regular exercise safely. First, “start at no more than 50 percent of the exercise you were doing before Covid,” says Dr. Monica Rho, the chief of musculoskeletal medicine at the Shirley Ryan AbilityLab in Chicago. Thread in some preparatory squats, too, she advises. “When you haven’t been exercising, you lose muscle mass.” Expect some muscle twinges after these preliminary, post-lockdown sessions, especially a day or two later. But sudden or increasing pain during exercise is a clarion call to stop and return home.Exercise researchers and physicians have some blunt advice for those of us aiming to return to regular exercise now: Start slowly and then rev up your workouts, also slowly. American adults tended to be about 12 percent less active after the stay-at-home mandates began in March than they were in January. But there are steps you can take to ease your way back into regular exercise safely. First, “start at no more than 50 percent of the exercise you were doing before Covid,” says Dr. Monica Rho, the chief of musculoskeletal medicine at the Shirley Ryan AbilityLab in Chicago. Thread in some preparatory squats, too, she advises. “When you haven’t been exercising, you lose muscle mass.” Expect some muscle twinges after these preliminary, post-lockdown sessions, especially a day or two later. But sudden or increasing pain during exercise is a clarion call to stop and return home.
States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.
Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.
Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.
If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)
Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications.Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications.
The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.
If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.
If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested.If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested.
Put those two together, and you’re earning an extra 3.8 percent a year for putting your money in stocks instead of bonds now compared with just three weeks ago.Put those two together, and you’re earning an extra 3.8 percent a year for putting your money in stocks instead of bonds now compared with just three weeks ago.
Wait, you might say. These are scary times, with the possibility of a recession, widespread bankruptcies and economic upheaval.Wait, you might say. These are scary times, with the possibility of a recession, widespread bankruptcies and economic upheaval.
This is all true. But those extra 3.8 percentage points are the compensation you are receiving for keeping an even keel and taking a long view — for being willing to ride out whatever disturbances the next year or two may hold.This is all true. But those extra 3.8 percentage points are the compensation you are receiving for keeping an even keel and taking a long view — for being willing to ride out whatever disturbances the next year or two may hold.
The fact that stocks are extraordinarily volatile right now, in that sense, isn’t a problem with stock investing — it’s a feature! If it weren’t for these periods of fear, stocks would trade at levels that offer returns more like bonds or cash. The fancy academic name for this is the “equity risk premium,” but an ordinary saver can simply think of higher long-term returns as the compensation you receive for tolerating volatility.The fact that stocks are extraordinarily volatile right now, in that sense, isn’t a problem with stock investing — it’s a feature! If it weren’t for these periods of fear, stocks would trade at levels that offer returns more like bonds or cash. The fancy academic name for this is the “equity risk premium,” but an ordinary saver can simply think of higher long-term returns as the compensation you receive for tolerating volatility.
It’s a good reason not to keep savings that are needed soon in stocks. If you’re looking to pay for a house or car in the short term, that money probably shouldn’t be in an asset that can lose 10 percent of its value in a single day, as stocks did on Thursday.It’s a good reason not to keep savings that are needed soon in stocks. If you’re looking to pay for a house or car in the short term, that money probably shouldn’t be in an asset that can lose 10 percent of its value in a single day, as stocks did on Thursday.
But for retirement or other long-term savings, the sensible approach is to set an asset allocation that makes sense for your level of risk tolerance and stick to it. And then think of the sell-off of the last few weeks as the kind of episode that isn’t so much something to fear, but a moment of opportunity — even if an unnerving one.But for retirement or other long-term savings, the sensible approach is to set an asset allocation that makes sense for your level of risk tolerance and stick to it. And then think of the sell-off of the last few weeks as the kind of episode that isn’t so much something to fear, but a moment of opportunity — even if an unnerving one.