Now is Not the Time to Abandon the Stock Market, Say Experts

Admittedly, the time has never looked better to take what profits you may have made in the stock market, grab your hat and coat, and head for the door before the whole thing bursts into flame and you get to see the inside of depression for yourself. The last several weeks have been nothing short of disastrous. All the record highs made during the Trump administration are largely gone, and the notion of removing the term “ongoing” from the coronavirus looks like slim hope. However, there are reasons to stick around, and investment experts are already pointing these out.

Pain is, Apparently, a Sign of Good Investing

Wealth Logic's founder, Allan Roth, recently noted that “Pain is a sign you're investing well.” This may sound like some of the most ludicrous advice you'll ever hear come out of someone with a clearly vested interest in keeping you in the market, but it's not without its rationale.

A look at the last quarter makes that much clear. For someone with a diversified portfolio in a mix of stocks and bonds, they may well have lost almost a quarter of that portfolio just by last Monday. However, those who took this massive loss as a sign to bug out would have in turn missed out on the three-day rally that pared-back those losses by about 20%, based on calculations from Morningstar.

Recovery Can Be an Intermittent Thing

As noted by Charles Schwab's vice president of financial planning Rob Williams, recovery after huge market drops—like the one we've just seen—can be tentative, and kick in when least expected. Thus, for longer-term investors, the advice often comes up to “buy the dips” as these represent buying opportunities for someone planning to leave their money be for 20 or more years.

Williams even supported this stance with some numbers about the S&P 500. The S&P 500 has produced a fairly static average rate of return of around 6% per year over the last 20 years, give or take. Those who would have pulled out during drops in that market—sometimes called “capitulations”—would have in turn missed the best 20 days the S&P 500 ever saw. Missing those 20 days, meanwhile, would have sent your return plummeting from a healthy 6% to a savings-account-worthy 0.1%.

That Old Saw About Depressions and Fortunes Still Applies

You've likely already heard somebody—maybe even a complete stranger at this point—tell you that some of the biggest fortunes have been made during a depression. With good reason, too; those who buy-in at the bottom are likely to make substantial gains when things recover. This is the reason for the entire “buy the dip” strategy, and echoes perhaps the oldest maxim in investing: “buy low, sell high.”

Buying in at the height of a good market all but ensures losses. Buying in after a catastrophe swoop in and reduces many stocks to bargain-basement shells of their former selves is a good way to be on hand when gains come.

Some of a particularly disaster-ready bent, meanwhile, may point out here that the question isn't really “when” things recover, but “if” things recover, suggesting that this calamity may be the calamity that destroys the whole thing. Indeed, that viewpoint takes on a little extra credence in the face of a worldwide health catastrophe that already has a body count.

This, Too, Shall Pass. Probably.

It is impossible to completely deny those of a doom-ridden bent, that this time may be the straw that snaps the camel's back and sends us all into a terrifying post-market world, where all our trade is barter and investing in the local warlord is the winning strategy. After all, each time is different, and trying to compare past to present has to be taken with a grain of salt. Sure, we came out of the Great Depression in one piece, but the United States, indeed the world, was a different place back then. A quick comparison of the number of family farms then and now drives that point home.

Still, though, there has never been a time in which “Mad Max” scenarios actually came to pass. Chances are, we'll come out on the other side of this mess too, with a little faith and hope. When that happens, opportunities will abound. This isn't the time to pull completely out of the market, because brighter days are likely ahead. Prepare for the worst, certainly...but don't forget to hope for the best while you're doing so.