Buy and hold — and don’t sell when the stock market plunges.
That’s the strategy many market pros use, and it has served me well through more than three decades as an investor — and as a financial journalist who needed to know daily what was happening in the markets. I’ve stuck with that strategy through gyrations as bad or even worse than what we’ve seen the past two weeks.
I moved a significant amount of money out of 401(k) stock funds and into a savings fund backed by short-term debt securities as I watched the Dow Jones Industrial Average rise and fall by 1,000 points and more in a day. I moved the first chunk on Feb. 25, when the Dow fell nearly 880 points, and then pulled the rest of my money out of stocks on Feb. 28 as the Dow’s loss over seven trading days approached 4,000 points. Not because I’m anxious; it’s because I’ll need that money in the near future and I don’t have the time as I did in the past to wait out the market’s volatility. I need my nest egg to be intact. It’s one way — but not the only one — to be a thoughtful investor.
EDITOR’S NOTE: Joyce M. Rosenberg has been a business news reporter and editor with The Associated Press, including a 15-year assignment as the news cooperative’s financial markets editor, for more than three decades. She has written or edited stock market stories during most of the market’s turbulent periods since the October 1987 crash.
I actually began moving money very slowly from stocks into savings four years ago; as prices rose, I collected my profits but I also kept a sizable amount in stocks to take advantage of the market’s gains. With my last transfers in recent weeks, the strategy left me with a loss of 9% in my stock holdings, compared with the Dow’s nearly 19%, and 1.7% on my overall portfolio, calculated from Feb. 19. On that day, the Standard & Poor’s 500 index closed at a new high.
The strategy of buy and hold rests in part on the belief that the market will recover, and that selling means taking a loss that ultimately will be unnecessary and costly. It means having some faith and a strong stomach while watching the market’s oscillations. It means being more like Warren Buffett than a day trader.
“Try not to make major decisions on changes in a bout of volatility,” advises Roger Young, a senior financial planner at T. Rowe Price. “If you can, avoid making a knee-jerk decision when markets are going up and down a 1,000 points a day.”
I began learning that lesson with the October 19, 1987, crash, when the Dow Jones Industrial Average lost one-fifth of its value in a single session; it was and still is the Dow’s largest one-day percentage drop. The Dow was already down from its previous high close before the crash; it took two years for it to reach a new closing high. I had little money in the market in 1987, but its recovery, which seemed unfathomable on the day known as Black Monday, taught me the value of patience.
I started regular investing with a 401(k) in the early 1990s. I weathered stocks’ gyrations in 1994, then enjoyed the big high-tech bubble in the latter part of the decade. That ended with the dot-com bust in early 2000, followed by a recession, the Sept. 11, 2001, terror attacks and a series of corporate scandals. The market kept falling until October 2002; the Dow, which lost more than a third of its value, didn’t reach a new closing high until October 2006.
Most recently, the Dow took nearly 5 1/2 years to reach a new high close after the Great Recession and financial system collapse in 2008. The Dow was down more than 5,700 points, or 40.3% from its previous high close by the time it hit bottom.
As the Dow fell over 600 or 700 points a day in October 2008, I decided not to look at my 401(k) balance; I was too depressed. But I drew comfort that with each drop and each 401(k) deduction from my paycheck, I would be buying cheaper shares that would eventually be worth more. I kept my vow until March 10, 2009, after Citigroup said it had been profitable the first two months of the year. I suspected the news might end the stock market’s misery and it did. The Dow was up nearly 6% that day. When I saw my balance, I was actually a little relieved. The damage wasn’t as bad as I feared.
Did I ever feel panic? Yes, absolutely. I bailed out of a bond fund in the ‘80s before I found my investing sea legs. I remember wondering as the market opened for the first time after 9/11, how low can it go? In 2008, would it ever end? As recently as February 2018, the Dow suffered 1,000-plus point drops days apart. I was uncomfortable but knew this wasn’t 2008 again; chances were good that the market would get through it.
What has changed and made me decide go go all-cash is my investing timeline. A market drop caused by fears about a pandemic seems likely to be more prolonged than I’m comfortable with right now.
But the strategy investors should take may be different from mine, which is based entirely on what’s happening in my life. Still, many market pros say investors who need money in the near future for homes, college tuition or retirement are among those who should consider being more conservative.
“The time horizon for your particular goals is very important,” Young says. But, he notes, there are middle-ground strategies between doing nothing and cashing out. For example, rebalancing, or selling some investments and buying others when a portfolio starts to have, say, too much in stocks and not enough in cash or bonds.
I expect to move money back into stocks in the not-too-distant future. In the meantime, I’m watching the fluctuations from the sidelines.