In this month’s edition of “Money Matters,” Scott discusses how investors should manage their portfolios when the markets are crashing—whether that crash is due to a pandemic, a housing crisis, a tech bubble bursting, or another issue.

Money Matters: What to do When Markets are Crashing Transcript

0:00:00.0 Mark: WTIP is pleased to debut Money Matters, a new monthly feature intended to help us understand more about managing our finances. Scott Oeth is a certified financial planner and adjunct professor. He's taught hundreds of financial professionals, retirement planning, and wealth management strategies. Scott joins us now by phone. Welcome, Scott.

0:00:19.7 Scott Oeth: Good morning, Mark.

0:00:21.1 Mark: Well, the markets. In a nutshell, what's going on?

0:00:27.6 SO: Yeah, it's been an interesting week or two, we had the historic drop very quickly over last week, and a lot of fears and concerns about coronavirus, not only in our every day life but in the economy and what's this gonna do in terms of people being able to go to work, or what might happen in the supply chain and ripple effects worldwide, so investors are trying to figure that out, you know, what's the appropriate value for companies, and so I think there's the long-term investors in that and a lot of panic and some un normal overlay of political uncertainty with nomination process and who's gonna be our next President, what type of impact that's gonna have. So, big drop over the last week and a half, and we've also seen some huge gain days mixed in there too.

0:01:14.1 Mark: I was gonna ask, was there something else going on prior to some of these big events like the flu, that the market would have inevitably had some kind of drop, is it just that it happened simultaneously or...

0:01:31.3 SO: Well, first of all, just a general discussion, not specific advice for anyone, you know, I think the mindset that it makes sense to have is to always be prepared and think that it could be a terrible day in the market, terrible month, a terrible year. We don't know, there's lots of educated guesses. But there's, you know you look, history, there's... Bull markets don't last forever, yet the market has always climbed upward and outward, but there's been many blips and dots and dips along the way, and there's been many different types of causes, so whether it was coronavirus or election cycle, I don't doubt that at some point it would've had some type of drop, but I also retain complete confidence that when you look out over the long haul, March has been a tremendous wealth builder for people. We look at 10, 20, 30 year periods of time.

0:02:21.5 Mark: Now, do you expect a rebound soon? I know this is a lot of projection, or is this gonna be a long-term problem? Is this gonna... The volatility.

0:02:32.6 SO: Yeah, yeah, there again... Guesses all around; thoughts and opinions. There's the matter of general discussion, not specific advice for anyone individually, but I do think looking at market history is really helpful, and we've had many short-term drops... It's easy to forget about them, but even just over a year ago, December of 2018 with... US stocks fell 20% one month, international stocks that got hit really hard, but it was very short term, we rebounded very quickly and ended up having 31.5% gain at the Standard & Poor's last year. So that was a quick one. You can look at 1987, there was a very bad, very fast crash in one month, and within a few months we'd recovered, but it was down 34% at one point, so [0:03:18.2] ____ rose very, very quickly, but we can also look within... Most of our lifetime, 2008 was the horrendous crash, we were down 57%, 2002 stocks were down almost 50%. And that lasted a couple years. In 1973-74, there again, US stocks lost about half their value and that lasted a couple years, and so I always say it makes sense, be prepared. We don't know if this is a short one or this is gonna be longer term downturn.

0:03:51.3 Mark: Well, now, what should investors do? I know one of the things my father always told me was just don't even look. When these market volatility things happen, don't even look. Don't even open the envelopes. What should investors do, especially those that are close to retirement or maybe living off their retirement accounts?

0:04:09.6 SO: Yeah, yeah, well, I think your dad's idea is not a bad one at all, you are comfortable that you have a quality portfolio, you're well diversified, you've got good holdings, they're not overly expensive, and the main thing is don't panic, people get hurt in bear markets if they panic. Oftentimes, they think they're being smart and rational, but really they get caught up into the fear cycle and they sell on the way down or at the bottom. And the problem is, yeah, maybe they've protected some of their capital from further declines, but what happens is inevitably they end up missing the upswing, and they've really locked in those losses.

0:04:45.2 SO: And so you don't wanna be in a position where, whether it's just because of a fear of what might be that you sell and miss gains on the other side and lock in those losses, or that you really are trapped because you need the money, and you have to sell at a loss. And so I think it is a great time to stop and think about what's going on, observe and try and make some decisions, and hopefully you're already well-positioned with a good portfolio and any near-term spending needs that you have if you're retired; money that you might need for the next year or couple years is insulated from that type of market volatility. But if you're not, it's not too late to reassess, adjust your portfolio and make sure that you are well set up, whether we have a quick rebound or this is a longer term downturn, this won't be the last one. This will happen again and again. Since World War II, this type of thing comes around every couple of years.

0:05:42.2 Mark: Alright, I think one of the things that gets talked about... Well, what should investors do? So many of us, we actually really depend on our advisors for these kinds of things... Yep, I had a nursing program. I did not have an investment program as part of my education...

0:06:02.4 Mark: I'm a good nurse, but it when it comes to these money things, your head just swims and so this would be the time maybe if you're nervous to talk to somebody about it, right?

0:06:12.9 SO: Yeah, I think that's a great idea. Obviously, it's my profession and I'm a fan of... I think it makes sense for people to work with a well-qualified branch financial advisor, it would be a great help not only for that technical knowledge and the experience and training you're talking about, but also just have someone one step removed that's not as emotionally tied to your position that can help clear up thinking a lot, so you're not just swimming around in your own head trying to make these decisions. So I think it makes a lot of sense and I would recommend people seek out quality advice.

0:06:48.7 Mark: And don't panic.

0:06:51.3 SO: That's right, that's right. Be prepared, historically people have been rewarded on the other side of these types of things. We talked about some of those bad crashes before. That 2000-2002, the Tech Wreck, Dot-com stocks blowing up, Enron, Worldcom, Tyco going down the tubes, CEOs being hauled away in handcuffs. Well, guess what, after that long, painful period, we had a 100% up-run in the stock market. And 2008, very scary time, global financial crisis, huge companies failing. Once we got through that, about a year and a half later, the stocks went on to post a 378% gain, an incredible run. So get yourself, whether you're a well-educated, do-it-yourselfer or you're working with a good professional, getting your own specific individualized advice, you wanna get to a position where you feel comfortable with your portfolio and stick with it, make sure those near-term spending money is insulated from market shops, you can live through these periods without having to worry about selling at a loss.

0:07:56.2 Mark: Alright, we're gonna make ourselves a little posters or screen savers that say, "Don't Panic."

0:08:01.7 SO: There you go. There you go.

0:08:03.3 Mark: We are talking with Scott Oeth. We'll be talking finances with Scott on the first Wednesday of the month on North Shore Morning. Anything else you wanna add this morning, Scott?

0:08:10.6 SO: Great talking with you, Mark. I look forward to next time.

0:08:13.9 Mark: All right. Thank you for talking with us today.

0:08:15.9 SO: Thanks a lot. Take care.