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What We Can Learn from Past Market Downturns

Comparing the stock market to a roller coaster ride would be valid. The ups are fun, and the downs can be gut-wrenching. But, as history shows us, the drops in the market have always come to end (thankfully), and when they do, we are left with blended feelings of gratitude and excitement.

The current market conditions brought on by the COVID-19 pandemic may feel like one of these straight-down roller-coaster dips that leave your heart in your throat. But again, bear markets have always ended, and when they do, we will be optimistic about the future once again.

As a financial advisor in Utah for many years and founder of Rock House Financial, I know how challenging it can be to retain a positive outlook when the market is in a sea of red. However, by doing so, we can put ourselves in a better position to maximize those downward trends.

Understanding the performance of our economic history may help us better understand what the future holds in store for us as investors. 

History Repeats Itself

America has seen its fair share of global crises and economic recessions. Unfortunately, we have a few examples just in the 21st century alone. 

We brought in the Millennium facing the dot-com bubble in 2000-2002. Then, simultaneously, we endured through the oil price bubble, the subprime mortgage crisis, the housing bubble and the automotive crisis around the infamous era of 2008-2010. 

During these times, many lives were left financially ruined. But many lives were financially changed for the better as well.

What was the determining factor as to why some lost everything while others gained? 

As we sit here today, we know that our economy and the stock market not only rebounded but went on extensive bull runs for nearly a decade following each of these crises. So, what does this all mean?

It’s Not Lost Until It’s Sold

With the fluctuation of prices and the uncertainty of our economic and financial health as a nation, getting wrapped up in fear is natural.

But when we are in a fear mindset, irrational actions are often made. We feel that we are taking the right actions at the right time, but that’s where the problem begins. Investing should be less emotional and more logical. 

People lose a lot of money by reacting emotionally in times like these, while, in reality, if they took a step back and tried to view the situation at hand logically, they would more than likely be in a better position later down the road.

It may be weeks, months or even years, but the market has, and we believe will always, bounce back and begin to pass pre-bear market levels. 

This is where a financial advisor can be a game-changer. 

Ready to have a real conversation about your finances? Contact Rock House Financial and get the discussion started. 

Leave it Up to the Professionals

Even successful people have emotional responses to their money. And as a financial advisor in Utah, I understand it. We work hard for our money. We have plans for the future that may not be reachable if the money isn’t there. 

However, taking a step back, having a third-party help you make an objective decision and therefore, making a more mindful move opposed to a knee-jerk reaction can make a huge difference. 

Experienced financial advisors are all too familiar with recessions. And that is a good thing for investors, because a financial advisor understands what it takes to survive financially during a crisis and help investors emerge thriving from it. 

While no one crisis is the same as another (and the COVID-19 pandemic is unlike anything else we’ve recently experienced), all bear markets and recessions have their similarities. They share a similar “cycle,” if you will: The bad news drives the market into a downward spiral, the even-worse news seems to kick the market when it’s down, and then there’s the slow, but eventual recovery.

A financial advisor can help you make wise decisions based on your finances and future goals at each phase of the cycle. For example, a financial advisor may offer strategies such as Dollar Cost Averaging (DCA) down instead of liquidating the majority of your portfolio in fear that it will never go back up.

At Rock House Financial, we highly recommend you reach out to your financial advisor, or at least take the time to begin cultivating a relationship with one. If you’re not currently working with someone and are looking for a financial advisor in Utah, contact us. We’re here for you whether you’re a current client or not. While each person’s situation is different, we are all facing the same market conditions and have many clients that share the same concerns and uncertainty that you have. When it comes to financial planning in Utah, we are professionally trained and licensed to analyze and plan rationally. We can look at every logical scenario – both best and worst cases – and help give you the peace of mind so many people need right now. 

The Takeaway

If you take one thing from this, it’s to not stick your head in the sand and do nothing. If you’re not sure where to start, reach out to a financial advisor so that you can both get to work immediately in creating a tailored financial plan for you.

Trying to independently make sense of what the market will do next and what positions you should sell out of and which new ones to buy into is how a lot of wealth is lost during bear markets. Unfortunately, we see this happen time and time again with DIY financial planners. 

While you wait for the market to rebound once again, don’t wait alone. Speculating can lead to more losses. 

Have a plan. We’ve all heard the saying, failing to plan is planning to fail. Making blind moves based off of temporary, emotional feelings can have permanent detrimental effects. 

It may help to stay away from the charts and news. This can spread fear, worry and anxiety. While that may not be their intention, it’s exactly what can happen, and that only deepens the fear mentality many people suffer from and can provoke the irrational decision making that is so dangerous.

Also, don’t seek professional advice from un-professionals. Just because someone has a 401(k) doesn’t mean that they are a professional or even an intelligent investor. While we all have our own opinions and thoughts to share, it’s wise to stick to professional, consultative advice from an advisor you can trust. 

No one knows how long or what the effects of any crisis will be. But what everyone does know is that the bad times will likely end and the economy will recover. Keep that front of mind as you begin taking the necessary steps in securing a positive financial future for yourself and your loved ones.