In terms of pure numbers, the March has been one of the wildest months in recent stock market memory. In fact, the Dow had two of its best days ever on March 2nd and 4th…but two of its worst days ever on March 3rd and 5th. These days put the term “stock market roller-coaster” in a whole new perspective.
The coronavirus outbreak is putting a major crimp on business activities around the world. Global supply chains have been dramatically affected. As a result, some of the world’s largest corporations have warned shareholders that they may not be able to reach their quarterly profit estimates.
Here in the United States, consumer spending is one of the main drivers of our economy. Economists’ concern is that the COVID-19 virus may spread, causing people to stay home and consumer spending to slow dramatically.
The worst-case scenario, according to some analysts, is that economic growth for 2020 could be cut in half if the virus continues to spread.
On Tuesday, March 3rd, the Federal Reserve announced they would cut interest rates by 0.5%.5 The Fed figured lower interest rates would prompt more spending and lending.
But the markets fell anyway. If the Fed needs to cut interest rates from these historic low levels, what does that say about the strength of the economy going forward?
There’s only so much that lower interest rates can actually do. Interest rates can’t fix global supply chains, or replace lost business. Nor can they stop a coronavirus from spreading.
Th real virus now in your company 401(k) retirement plan account is that there are more sellers than buyers of the stocks you own in your mutual funds.
When supply is greater than demand, sellers are in control. And the price of any good, service, or commodity will go down.
You can’t manage your company 401(k) retirement plan account based upon predictions, stories, or forecasts. You have to make decisions based upon what is actually happening in the economy, interest rates and stock markets.
When the stock markets trend down, your investment management focus needs to be on preserving the principal in your company 401(k) retirement plan account.
In the last two weeks, many of my client company 401(k) investment advice accounts have dropped to predetermined exit points. Several of their mutual funds have been sold in order to protect the last several years of stock market gains, individual contributions, and company-matching contributions.
A large part of these company 401(k) retirement plan account balances has been moved into the money market account in order to preserve principal.
The coronavirus headlines will probably continue to impact the stock markets. Until that situation changes, you desperately need a logical, disciplined, informed, and prudent investment management strategy for your company 401(k) account.
By the time you read these words, the headlines will have changed again. That means the markets will have probably swung again. That’s okay. You can afford to ride out the current coronavirus storm with a money market balance in your company 401(k) retirement plan account.
Ric Lager
Lager & Company, Inc.
