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Jorgen Vik: Take a deep breath and a step back; don't panic and sell

One of the main investment lessons I learned from the financial crisis in 2008–2009 was that "you just never know."

Gradually, however, I fear many began to forget this fundamental lesson.

For the past decade, it could feel like a missed opportunity to hold on to cash for planned near-term withdrawals. With stock markets going up for so long, it was easy to complain about "not keeping up with the market."

Then, COVID-19 and an oil price war came out of left field. Suddenly, no one should need reminding of the importance of holding cash as just-in-case money.

Hopefully, you have set aside enough cash and conservative investments like money-market funds to cover your planned withdrawals for this year and next. Maybe even longer.

To gauge this, look at how your stable investments may equal many months, or years, even, of expected withdrawals.

Let’s say your plan calls for drawing $1,000 per month from your investments. If you have $24,000 in a money-market fund, that’s two years’ worth of planned withdrawals. That’s time during which your stocks may recover.

But although you may hold adequate amounts of cash, a large part of your portfolio may be in stocks, causing your account balance to drop significantly.

This can be unsettling. You’re human.

Even so, now is not the time to panic and sell. Now is the time to take several steps back and look at the bigger picture.

Two weeks ago, I encouraged you to step five years into the future and look back from 2025 to gain a better investor perspective. If five years feels too long, how about two years? Do you see a way we may have put most or all of the trouble of the coronavirus behind us by then?

I wholeheartedly believe so.

That could mean companies could start to see their sales recover. This could further lead to higher stock prices. Remember, stock prices are related to companies’ sales and profits.

Actually, stock prices very well may turn before the virus problems are over. When more than a few people sense that it’s not getting worse, we could see a shift in investor sentiment.

Regardless, I believe there’s an end to our coronavirus trouble. Just because no one can tell us exactly when this will end doesn’t mean it won’t.

Don’t lose sight of this longer-term picture.

I believe we’ll eventually move on to the next bull market. At such time, don’t forget the lesson of 2008 and of 2020 and of many times before that. Keep some safe money in reserve, because you just never know.

Good luck.


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