Financial advisors have been telling clients for years that they should just hang in there when the inevitable selloff came. It’s a safe bet that none of these guys ever uttered the words “bear market” to describe the supposedly healthy correction that eventually would arrive, since that would have spooked investors. Now the correction is upon us, if that’s all it is, but it is already unlike any before it: steeper, swifter and fraught with growing uncertainties about the economic effects of the pandemic. The S&Ps have plummeted nearly 30 percent in just three weeks, and there are no guarantees that an even worse stampede is not looming.
The wisdom and steadfastness of advisors who are presently counseling clients to sit tight is certain to be tested in the weeks and months ahead, even if the global contagion grows no worse. The plunge has already been sufficiently punitive to cast doubt on any rallies that are coming. Many if not most investors will have resolved to sell into strength in hopes of recouping perhaps two-thirds of what they have lost. It is predictable that the upthrusts will never quite reach a satisfactory level and that investors, increasingly frustrated, will settle for less and less on the upslope of each new swoon. When the bear market finally bottoms 2-3 years from now, most nest eggs will have been reduced to a pittance. For their part, advisors will finally be gung-ho to sell everything. That’s how bear markets work. Always. If you are praying this isn’t one, take no comfort in the fact that you are in the majority.