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What Would You Do if The S&P 500 Dropped?

What would you do if the S&P 500 dropped back to 2,237? 

That’s the level at which the S&P 500 closed on March 23rd. From the peak, it was down over 33% in the matter of weeks. The precipitous decline was then quickly followed by a bounce which allayed some fears and, potentially, allowed investors to gain their composure and remain committed to their investment strategy. 

Earlier this week – following a week that saw the biggest weekly percentage drop in nearly two months - the market rallied on hopes that a potential vaccine showed progress in trials and could be approved for late stage testing in July. The S&P 500, as of Thursday closed at 2948, nearly 32% above the March lows. 

For many, there seems to be a disconnect between what we see around us – shuttered business, closed schools, 30M+ unemployed - versus the direction of the stock market. What if the reopening of states and the economy doesn’t go well? What if the cases spike and we’re moved back into quarantine, either through governmental decree or just individual precautions? What if everything goes well until the fall when we may be dealing with the flu and a resurgence of the coronavirus simultaneously? Or, what if the skepticism about this latest promising vaccine is well founded? Hopefully, none of these what-ifs materialize but, in any of these scenarios, it’s not hard to imagine another downturn in the market. 

I encourage you now – while the market is rising – to look back at your account balances on March 23rd. Think about how you would react if your account were to look like that again in the coming months. Would you be unflappable in the face of bad news; sternly staying the course again? Would you, instead, hold less conviction the second time around when your potential optimism has taken another hit? 

Think back to when you took road trips before there were real-time navigation systems in your car or on your phone. Prior to starting your trip, you probably mapped out the roads you would take and the turns you would make before you left the house (while making sure you had your traveler’s cheques, but I digress). You didn’t have to pull out your Rand McNally as you were careening down the highway at 75 mph. You just had to look for your next turn. By charting your course beforehand, you also reduced the amount of time you spent lost and frustrated. (If you’re like me, you don’t make the best decisions when you lose that sense of control). Likewise, prepare now for the possibility that the markets retest the March lows. If you think your conviction could be shaken, then talk to your advisor now when you’re thinking more clearly. Similar to those journeys of yesteryear, develop a road map now - or just reaffirm the plan you already have in place - so you have something to reference when the markets are low and your emotions are running high. What steps will you take? What will you need from your advisor to remain on track?

Don’t let yourself feel lost and on the verge of taking a wrong turn. Here’s to hoping that map stays in the glovebox.