Never before have individuals had such a large role to play in determining the direction of stock markets—and the fate of our global economy.
We’re all taking a time-out to deal with a medical emergency: COVID-19, the novel coronavirus that has halted travel and shut down countries. The sooner we get the virus taken care of, the sooner we get back to normal life, whatever that turns out to be.
The length of time it takes to resolve the medical emergency directly impacts how much damage the economy will suffer and how long it will take to repair. Until a turning point is reached in the spread of the virus, the value of stocks will likely continue to decline and gyrate wildly.
Financial professionals, myself included, are more aware than most people of what’s at stake in the race to crush the virus. The math of infectious disease and money is the same—they both grow exponentially. A single penny doubled every day is worth $5,368,709 at the end of 30 days. But if we let the penny double for just 14 days, it’s only worth $81.92. If we can stop the penny doubling after seven days, it’s only worth $0.64.
It’s the same with the spread of the virus. Time matters. Enormously.
Money managers and investors around the world are carefully studying daily new-case reports, watching for slowdowns in the growth rate of cases in hot spots around the globe. Once financial professionals see signs that growth rates are slowing, they can begin to assess the economic damage and estimate the time it will take to repair the global economy. Equipped with predictions, they will begin putting money back to work. Once that happens, it’s likely stock markets will rise. Probably quickly.
Here in Santa Clara County, California, we’ve been under a shelter-in-place order for more than two weeks (and on Tuesday the order was extended for another five weeks, until May 3). Many Silicon Valley companies had requested that employees work from home a week prior to that.
Our freeways have been nearly empty for three weeks now. It’s getting harder and harder to make ourselves stay home the longer we’ve been cooped up. But as shelter-in-place fatigue sets in, it’s important that we remain resolved to stop the doubling penny. Every single day matters, and each new day matters much more than the day before because of the exponential growth of the virus.
We’ve all got a part to play in the fight against the virus and the effort to restart our economy. In this case, “fighting” doesn’t require you to do anything other than stay home and wash your hands.
We are an entrepreneurial society. We adapt, we improvise, and we are resourceful. Because of that, the U.S. economy is resilient. This will be good to remember in the coming weeks as negative financial reports begin to come in on individual companies and broad sectors of the U.S. economy. The significant challenges we are all confronting in dealing with the coronavirus will undoubtedly spawn changes that will make the economy stronger and better in ways we can’t yet imagine.
Strange times call for odd financial advice. To do your part to get the economy and your 401(k) back on track, the best strategies I can suggest are: stay home, wash your hands, clean frequently used surfaces, and whatever you do, don’t make things worse with damaging emotional decisions about your investments.
Hold steady. Everything will eventually be back to a new normal, and your investments will be too. If we play our pennies right, we'll be back before we know it.
