Friends, I want to talk to you today about the monstrous volatility ripping through global markets.
I’m not going to insult your intelligence and sing kumbaya in your ear. Make no mistake: We investors are getting brutalized.
And what you do next could be the difference between retiring on time or working an extra five to seven years.
That’s why this could be the most important essay you read this year.
Here is the ugly truth: The coronavirus is NOT like the flu.
It’s anywhere from 10–40x more lethal than the flu. However, if you’re young and healthy… chances are, you’ll be fine.
For the over-60 set – and folks with certain preexisting health conditions – the mortality rate skyrockets.
Over 120,000 people in more than 100 countries have already been infected. And on Wednesday, the World Health Organization declared the outbreak a pandemic.
It’s estimated we won’t have a vaccine for 12–18 months. In that time frame, hundreds of thousands of people (perhaps millions) could die from COVID-19.
So I want you to take this very seriously, but I don’t want you to be paralyzed by fear.
Absolutely follow the CDC’s recommendations, and wash your hands frequently for at least 20 seconds. Stop shaking hands, and do a fist bump instead. Avoid crowds, and cancel your travel plans.
I traveled over 192 days last year… And I just got back from 18 days of travel, for a total of 53 days of travel within the last 90 days. I’ve upset a lot of people by refusing to travel now. But if I can do it… so can you. I want you to be safe.
So this is our current reality. And make no mistake; it will slow the global economy.
Here is the key message I want to share with you: The economic slowdown from the coronavirus will be temporary.
Humans have been dealing with pandemics since the dawn of civilization. And yet, somehow, the wheels of global commerce continue to grind on.
What we’ll experience is a one-time demand shock to the global economy. Corporate earnings will crater… People will lose their jobs… Economic growth will stall.
There is no doubt about that.
Wall Street knows this and is readjusting stock prices accordingly. But it’s nothing to fear, because it’s temporary.
Let me repeat that: The earnings and economic slowdowns from the coronavirus are temporary.
So from an investment standpoint, we have an opportunity to buy stocks and indexes that are correctly priced for the short term, but woefully underpriced for the long term.
On Tuesday, I told you I have millions in the market, and I’m losing hundreds of thousands of dollars per week.
Have I sold? Have I traded out of equities and into bonds to hide out from the volatility?
No. I’ve done none of those things.
Instead, I’ve been buying. And I want to explain why…
When It Comes to Investing, It Pays to Be “Dumb”
I learned long ago not to confuse my trading account with my long-term account. In my long-term account, I buy blue chips and index funds… and leave them the heck alone.
Friends, if you’re buying indexes and blue chips and you’re not using margin… you never, ever have to worry about volatility.
The market can fall 50% tomorrow, and you shouldn’t lose one wink of sleep over it.
That isn’t just some textbook platitude. It’s backed up by hard data.
Let me show you how amazing the stock market is…
Imagine it’s 2007, and you just sold your business for $5 million. Now, assume you have the worst timing imaginable and put your money into the S&P 500 at the absolute peak of 1,565 on October 9, 2007.
By March 2009, your $5 million account would’ve dropped nearly 58% to about $2.2 million. That’s a devastating loss – if you sold… if you tried to trade around it… or if you tried to get cute.
The right action to take back then is still the right action to take now: SIT STILL.
Your job was not to figure out how to fix the loss. Your only job was to enjoy your family and live your life.
The Stock Market Is Self-Healing
I want you to internalize this important truth… The stock market is self-healing.
I say that because, as of this year’s peak in the S&P 500, your initial $5 million (from the example above) would’ve been worth $14.1 million. That’s an 8.7% compounded annual return (with dividends reinvested).
Imagine going from a $2.8 million loss to a $9.1 million gain. That’s the power of the stock market.
But it only works if you buy quality stocks and indexes… and SIT STILL.
When it comes to your long-term investments, activity is your enemy. But time and patience are your best friends.
That’s why I don’t sweat my current losses. That’s why I’m continuing to commit hundreds of thousands of dollars to index funds and select blue chips.
Have I been a little bit early? Sure, I have… But so what?
If you’re a long-term investor, you can see that time repairs all stock market wounds.
So I implore you to leave your long-term investments alone. If you try to get “smart” with your long-term money, you’ll fritter away your capital. And you’ll likely cause yourself an extra five to seven years of work, just to recoup your losses.
Hear me when I tell you this: The best action to take in your long-term account is to do nothing.
Keep your trading confined to your trading account. Leave your long-term money alone.
Again, what we are experiencing is temporary.
Remember the lessons of 2007–09. Please do not make long-term decisions based on short-term facts. And the fact is, while the economic and human fallouts from the coronavirus are very serious… they are temporary.
If you’re looking to buy into this market weakness, my favorite long-term exchange-traded fund (ETF) is the Vanguard Total Stock Market ETF (VTI).
Let me be clear: I am not calling a bottom here. I learned that lesson in 2008. What I am calling is that this sell-off is temporary.
The bet I’m making with stacks of my own money is: We’ll either be at or have exceeded the old highs within 18 months.
I picked 18 months for a reason. By then, we’ll have a vaccine, and people will start traveling and going out again.
Remember, the market is a discounting mechanism. It won’t wait for a vaccine. It’ll start to move higher as soon as it gets visibility on a firm date of an available vaccine.
So by the time a vaccine is available, markets will likely be at or above the old highs.
Let the Game Come to You!
Editor, Palm Beach Daily
P.S. If you’re looking to take advantage of the current global chaos, confusion, and misinformation, forget the stock market. You need to be looking at the crypto market.
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I’ve helped more regular Americans become millionaires than any other newsletter editor in the world. And on Wednesday, March 18, at 8 p.m. ET, I believe I’m going to mint another round of millionaires.
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So come join me on March 18, as I reveal the details on how to get access to what I call my “Final Five.”