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The Fear Behind Current Events

 

The Fear Behind Current Events

For many, saving for retirement is a constant worry. But money, all on its own, can be a source of stress. According to a Gallup poll conducted in May last year, one-quarter of Americans worry “all” or “most” of the time that their combined household income won’t be enough.

Between coronavirus and the sharp drop in oil prices, the market has been particularly volatile recently. While these periodic declines are a normal feature of long-term investing, they can feel unnerving, especially when money on its own is so stressful. You may have even heard that this might be the beginning of a recession.

Uncertainty is Scary

No one can predict the future. As much as we might wish to promise you that things will get better, we can’t. What we can do is reassure you that this is not the first correction. This is not the first time the stock market has dropped. This isn’t even the only time people have started hoarding toilet paper. In 1973, U.S. consumers cleared store shelves of the rolls for about a month based on rumors, fear, and a joke made by Johnny Carson on late night television.

(To ease your mind, the country is unlikely to run out of TP. The average person uses around 100 rolls a year, and around 10 percent of that is imported from overseas. There are around 150 companies making this product here in the U.S.. Your bathrooms should remain stocked without issue.)

So why are people buying up all the toilet paper? Facts aside, logic often fails when emotions are involved. One study showed that around 90 percent of decisions are made based on emotion. This study showed that people often use logic to back and justify the decisions they’ve already made.

The fact is coronavirus is serious. The World Health Organization characterized Covid-19 as a pandemic on March 11th, 2020 and the emotions are telling people to panic. The TP hoarding is only one visible representation of this fear. But the caution that is being advised is different from panicked fear.

This Time Probably Isn’t Different

The stock market is feeling the impact, both from disease, Covid-19’s effect on communities across the world, and the fear it inspires. But this isn’t the first pandemic to cause a drop in the Standard & Poor’s 500 index (S&P 500). Historically, the S&P 500 has rebounded within six months of past outbreaks, including SARS, avian flu, swine flu, ebola, and zika viruses.

With the swine flu, back in 2009, the S&P 500 rose 18.72 percent within six months and was up 35.96 percent within the year. This time, this virus, is probably no different. While the market will feel the impact of corona, history shows it will likely come back stronger than ever.

No one can say how quickly or how much the market will rebound this time, but investors should try and remain calm.

We won’t say that staying calm will be easy. The media seems to love spinning and showcasing the stories that inspire the most fear and drama. Add to that the growing number of those infected, school closures, cancelled sporting events, and world news, and even the healthy and financially secure can feel the panic start to creep in.

But investing is a long-game and selling in a panic is a good way to lose money. In fact, unless you sell at a low, your loss is just temporary until the market rebounds. And once more for those in the back, history shows that the market has always come back.

Choices made out of fear—emotional choices—aren’t smart when your money is involved. So don’t hoard toilet paper, and don’t sell for a loss.