Stock market turbulence is here again, and once more, investors are nervous about what could happen next. It's always uncomfortable watching your retirement account balances drop, especially for those who don't have that long before they expect to retire and will need the money to cover their living expenses.
Wednesday's big drop in the market caused some to recall President Trump's words from his Oct. 22 debate with former Vice President Joe Biden. In his comments last week, Trump said that a Biden win would bring about "a depression the likes of which you've never seen" and that "your 401(k)s will go to hell."
I'm not a political commentator, so I'm not going to try to apportion blame between the two major political parties for the current situation. What I am confident about, though, is that my 401(k) plan won't go to hell -- and I don't think yours will either. The simple reason: I've been through too many times when the sky seemed to be falling to think that things will be different this time around.
Why worrying about your 401(k) seems to make more sense than ever
It's not easy to have that confidence when times get tough, and the COVID-19 pandemic has had an unprecedented impact across the globe. There's no playbook for dealing with a worldwide health crisis in an era of globalization. The total failure to contain the outbreak thus far has led to yet another wave higher in case counts and longer delays in having life return to normal for billions of people across the planet.
In terms of economic impact, U.S. efforts to keep businesses open might well give way to the public health necessity of returning to more stringent restrictions. Already, similar fears in hard-hit European countries like France and Belgium are prompting the same concerns, and international stock markets have fallen sharply.
More importantly, COVID-19 has changed the way people live their daily lives. Tens of millions of Americans are out of work without immediate prospects to make a living. Even those relatively unaffected by the pandemic are scared to do things that they used to take for granted -- with consequent impacts on the businesses on which they used to rely.
In that context, the stock market's ascent for much of 2020 has made no sense at all to most people. And now that the basic underpinning of the bull case -- that COVID-19 wouldn't have a lasting impact -- is getting undercut by reality, a big stock market drop seems long overdue to them.
Investors have always been scared
The thing is, though, that stock market investors have always had to overcome fears. There's been no shortage of things to worry about over the course of history:
- In the 1970s, the OPEC oil embargo threatened to bring transportation and basic industry to a screeching halt. Inflation soared and economic growth stagnated. Yet after a painfully deep bear market and subsequent aftershocks, the market rebounded and thrived.
- The Crash of 1987 marked the apparent end of a period of excessive speculation, and many predicted another Great Depression. In the end, the fallout from the steep market declined lasted only a couple of years before heading to record highs.
- The tech bust of 2000 followed the irrational exuberance of the 1990s, with companies lacking even basic business models going public and having their shares bid up on hopes that they could cash in on the nascent internet. Before the market could recover, the 9/11 attacks raised a new threat to global security, halting trading for days and prompting a further sell-off. America bounced back from that tragedy and found its direction.
- The Great Recession in 2008 and 2009 brought the entire global financial system to the brink of collapse. Yet policymakers found fixes to keep things working, and it didn't take long for 401(k) investors who stayed the course to recover their losses.
The coronavirus bear market itself in February and March is another example of how resilient investments can be when investors take a long-term view. The pace of the drop was gut-wrenching, but many stocks rebounded to set new record highs.
Don't let politics lead you to make a money mistake
Perhaps the best example of how trying to tie markets to politics is a mistake came from President Trump's own election. Many argued that if Trump were elected in 2016, the markets would plunge. Yet instead, they soared -- surprising those who'd feared massive losses.
If you've managed your 401(k) well and its exposure is consistent with your tolerance for risk and your long-term financial goals, then you shouldn't worry about any near-term news item. No matter how important it might seem, history has shown that a long-term view has led to success for those investors with the discipline to stay the course. Be one of them.