February 2020

What Does The Market Tumble Mean?

The U.S. stock market came down with a case of coronavirus this week, as the Dow fell more than 1,000 points Monday on fears that the virus would cause serious problems in the world economy. The slide, which wiped out the market's 2020 gains, was followed by a drop of 879 points Tuesday, as politicians and investors alike scrambled to come up with strategies to help deal with the situation.

This tumble illustrates some important realities of investing in the stock market:

  • Significant drops – and increases – are inevitable. Monday's 1,031.61-point decrease was the third-highest one-day point drop in history. The top two occurred within three days of each other: on Feb. 5, 2018, when the Dow fell 1,175.21 points, and on Feb. 8, 2018, when it fell 1,032.89. And Monday's 3.56% decline was not even close to the largest one-day percentage decrease. That occurred on Oct. 19, 1987, when the Dow fell 22.61%. On the other hand, the Dow rose 1,086 points on Dec. 26, 2018.

  • The world is increasingly interconnected. The underlying cause of this market decline is concern about the effect the coronavirus could have on an economy that is ever-more international. China has curtailed its economic output in an attempt to contain the virus. But that means that companies and countries that rely on Chinese exports are feeling the pinch. And it means that the Chinese have less money to buy exports from other countries. This interconnectedness occurs all around the globe. The spread of the virus to countries other than China further complicates the problem and was the major factor behind this week's decline.

  • In investing, as in so much else, there are things you can't control. The coronavirus, and its potential impact on a world economy, are things you cannot control -- like weather, civil and political unrest, currency manipulation and similar factors. And because individual countries and their economies no longer exist in isolation from one another, these kinds of occurrences are likely to affect your portfolio, even if they happen a long way from you.

  • But there are things you can control. The main thing that investors can do to cushion themselves against forces they can't control is to create portfolios that are as resilient as possible. At Peachtree Investment Partners, we start with the stock of companies that we believe have the best chance of success: mainly large American companies with strong management, good return on investment and a long history of consistency in revenue and earnings growth. In addition, we believe strongly in stocks that pay dividends. Over time, reinvested dividends can have a significant impact on your portfolio growth. And dividend income means that not all your return is reliant solely on the increase in stock price. We use these criteria to help you create portfolios that align with your needs, your timeline and your feelings about risk.

  • Investing is not a short-term undertaking. True investing has a long time horizon; investing for the short term is really speculation. And despite drops like this, equities have provided better returns over time than any other kind of investment.

We understand that big drops in the market can be frightening, and we urge you to give us a call if you want to discuss your investment strategy. In the end, of course, you need to do what you feel is most likely to help you meet your financial needs and still be able to sleep at night. But we are always happy to answer your questions and address your concerns.

Garry K. Schaefer
Atlanta, Georgia
February 26, 2020

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