You can face market volatility with a greater sense of calm if you keep certain crucial things in mind — as SMI executive editor Mark Biller explained on Monday’s MoneyWise.
To listen to a portion of the program, click the play button below — or, if you prefer, scroll down for the transcript. (And for more radio appearances by members of the SMI team, visit our Resources page.)
MoneyWise, with hosts Rob West and Steve Moore, airs daily.
Transcript
Steve Moore: Rob, Mark Biller is the executive editor at Sound Mind Investing. He joins us by phone from his shelter-in-place bunker in Louisville, Kentucky.
Rob West: That’s right, Steve. With the way the coronavirus has affected 401(k)s and IRAs, this is a much-needed exercise. Mark, delighted to have you back on MoneyWise.
Mark Biller: Hey, good to be with you.
Rob West: Well, let’s start today — before we break down some timeless truths from God’s Word, and then perhaps a history lesson on how we can interpret the markets in light of this virus — start by giving us just a bit of an overview. What do we need to know about coronavirus and the markets?
Mark Biller: Well, we know that the world and, as a result, the markets have really been in turmoil because of this fast-moving pandemic. Just to review real briefly, after setting a new record high on February 19, it took the market just 16 trading sessions to enter bear-market territory, which is usually defined as a drop of at least 20%. So that made this bear market by far the fastest one in history.
To give a sense of perspective, historically it’s taken bear markets an average of about eight months to do what this bear market did in just 16 trading days.
Rob West: Incredible.
Mark Biller: So if this bear market felt especially jarring and painful, that’s really because it was. This one really has been unusual in terms of its speed and severity. And, of course, you’ve got the very real-world health impact on top of that.
Rob West: But we also know, Mark — and we appreciate how you remind us of this often — that there are some very reassuring and timeless truths that we can pull from God’s Word that really apply to situations like this and really the whole of our lives. I’d love for you to unpack those for us.
Mark Biller: Sure. Well, first starters, you know, we know that we aren’t supposed to be afraid. Second Timothy 1:7 says, "For God has not given us a spirit of fear, but of love and of power and of a sound mind." And beyond that we know that God is always with us, he’s always for us, and he always loves us. So 1 John 3:1 tells us, "See what great love the Father has lavished on us that we should be called children of God."
Now, we also know that God is aware of our needs, and he promises to provide for us. Matthew 6:8 tells us, "Your father knows what you need before you ask him." And later in that same chapter, verses 31-33, Jesus says, "So do not worry saying ’What shall we eat’ or ’What shall we drink’? or ’What shall we wear?’ For the pagans run after all these things, and your heavenly Father knows that you need them. But seek first his kingdom and his righteousness, and all these things will be given to you as well."
Now, the Bible also tells us that in this world there’s going to be trouble. But regardless of what happens in the markets, God’s Word teaches us to be patient, to take the long view. So another one of our favorite investing verses is Proverbs 21:5 which reads, "Steady plodding brings prosperity, hasty speculation brings poverty."
And finally, and I think it’s so important in light of the human cost of this virus, we know that God has a purpose for every trial that we experience. He uses those trials to mold our character and draw us closer to him if we’re willing to let him use those things in our lives. Paul talked about his "thorn in the flesh" in 2 Corinthians 12, and he concludes the discussion with the Lord’s reply to his requests to remove that from him. And the Lord said to him, "My grace is sufficient for you, for my power is made perfect in weakness."
Rob West: Mark, I appreciate your biblical perspective. You always bring analysis of the markets and investing through the lens of God’s Word. And we so appreciate that.
You know, for the person who’s saying, "Mark, I’m struggling with this because as a believer, I realize that God gives to me as a steward to provide for my needs, but I’m struggling with the tension between the needs in the world and the giving that I’m doing today, and perhaps feeling guilty about setting something aside or investing for the longer term." How do you help them process that?
Mark Biller: Well, we know that investing is a biblical idea and saving certainly is a biblical idea. Providing for our families is something that’s outlined very clearly that we’re supposed to do. And part of that provision is putting aside, especially during good times, for times that aren’t so good. So the idea of saving for the future and investing for the future — those are very sound ideas.
Now, as always, the difficult part is finding the right balance. We don’t want to be hoarding on the one hand, but we don’t want to be foolishly not preparing for the future either. And I think really, this is a great example — this period that we’ve been going through is a great example — of how, at least in our modern economy, there are going to be periods when these things kind of come out of left field, and you have to have some reserves in order to navigate those well.
So I think that to some degree it is an individual thing where you just have to seek the Lord and His wisdom of where that balance is for you. But, you know, at a minimum, the typical advice of trying to have three to six months’ worth of expenses on hand so that if you do run into something like this periodically, if you do run into a job loss, you’re not up the creek immediately, you at least have some reserves to draw down on.
Rob West: All right. You know, it’s also important as we consider times like this to take some lessons from market history and previous bear markets periods that we’ve been in historically that are similar — even if the circumstances were different, the market indications and the market cycles were perhaps similar to what we’re going through. So help us unpack what we’re experiencing in light of the past.
Mark Biller: Sure. Well, and I think as a starting point, Rob, it’s important to point out that investing isn’t a perfect science, and there’s no formula that we can just plug in the data and it’ll tell us what happens next. But we can learn from the past and they’re definitely some helpful lessons that we can draw on from previous bear markets.
So, first of all, every bear market has unique causes. This COVID-19 pandemic bear market has been different from what we saw in the Financial Crisis in 2008, which was different from when the Tech Bubble popped in that bear market of 2000 and so on. You could keep going back — each one has unique causes that are different.
But every deep bear market also generates similar investor responses. So investors inevitably get fearful when markets start to drop sharply. And when people panic, they tend to make bad decisions. Fear drives people out of the markets, and that fear also tends to keep them out of the markets long after the inevitable recovery has begun.
You know, one of the things having done this for quite a long time, the worst part of bear markets for us is the inevitable phone calls and emails that we’ll get years out from now — three years out, four years out, five years out — with people telling us, "I bailed out during the bear market and I’ve sat out on the sidelines for the last three years. And now I don’t know what to do." Those are the kinds of decisions that really hurt an investor’s long-term — like lifetime — type of return and [the] ability to build the type of retirement savings that they need.
And that’s a big reason why we constantly stress that it’s so important to have a plan. Selling some stock holdings — say, for example, early in a bear market, that may be a good decision or it may be a terrible decision, depending on whether it’s part of your long-term plan. And if you don’t have a long-term plan, you need one. If you don’t know how to create one that’s appropriate for you, the resources at SoundMindInvesting.org can help you with that process.
But one of the great lessons from market history is that these scary market-moving events actually happen pretty regularly. If you look at them in history, they come every so often. And yet through them all, we know that the market has continued this constant jagged climb higher over time.
Rob West: You know, Mark, as we look at any other investment opportunity in terms of how our money can work for us over the long haul to grow systematically — and we can look at various investment asset classes like bonds and stocks and even precious metals, we can look at real estate — what we know is despite these ebbs and flows, and despite the volatility up and down, especially in periods like this, the stock market with a well-diversified long-term strategy has been the very best place, consistently, to build wealth. Isn’t that true?
Mark Biller: Yeah, it absolutely is, and nothing really has even been close. And that’s why we are willing to put up with these, frankly, sometimes terrifying episodes like we’ve been through lately, where the market can drop 35% in a matter of a few weeks or a month. You wouldn’t put up with that if you didn’t have the promise over time — or at least the potential, I shouldn’t say promise, I mean promise as in potential — of making those kind of big returns consistently over a long period of time.
Rob West: Well, we certainly know markets always recover — at least they always have historically. And we certainly don’t expect anything different this time. We don’t know what it’s going look like, Mark — will it be a "V"? Will it be a "U"? We hope not an "L" for any extended period of time! But the recovery will come and this economy is resilient. And we know despite all of that, we need to make sure our trust is in the right place.
Mark Biller: Yeah, for sure. We have to base this on things that are unshakable. And, so like we talked about early in the program here, there are unshakable truths and promises from God’s Word. That’s the bedrock. And then we need to make the best decisions that we can as stewards of God’s wealth — and that’s where these investing lessons from history, and having a personal plan, and all of these other principles of diversification and otherwise that we talked about frequently come in.
Steve Moore: Mark Biller with us today from SoundMindInvesting.org. And it’s always a great pleasure to have you there, Mark. Thanks so much. And let’s do it again sometime real soon.
Mark Biller: All right. Sounds great. Thanks for having me.
Rob West: Thanks, Mark.
