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What’s Coming Next? (And What to Do About It?)

A quick note: obviously, the stock market’s recent/current volatility is not the most important thing happening in the world right now. Yet of all the events going on, it’s the one I feel qualified to write about, so that’s what I’m doing, in the hope you find it helpful. Stay safe, everybody.

In terms of percentage gained/lost, last Thursday (3/12) was the 5th-worst day in stock market history. (Of the four days that were worse, three were part of the 1929 crash.)

The following day, Friday, was the 9th-best day in stock market history.

If you had your money out of the market before Thursday, you looked like a market-timing genius by Thursday evening. But if you took your money out near the end of Thursday or early Friday, you have just the opposite result: you were hit by the historically-bad day and missed the historically-good day.

Jumping in and out of the market, especially during super volatile times like this, is a high stakes game.

And it’s not an easy game to win.

When I think back to early Friday morning (and as I write this, it’s Friday evening, so that wasn’t very long ago), the things on my mind were whether my wife’s workplace would soon be implementing mandatory work-from-home, whether local schools would be closing, and things of that nature. I definitely wasn’t sitting there thinking, “maybe today will be one of the best days in stock market history.” Frankly, if anything, I would have bet on a further decline.

Let’s Try an Experiment

Below are three charts, made using the Morningstar website. Each one shows the performance of the Vanguard 500 Index Fund over a particular 1-month period. The specific dates are intentionally omitted.

Unspecified Decline #1:

Unspecified Decline #2:

Unspecified Decline #3:

In each case, the fund has fallen by a considerable amount over the month in question. Again, I’ve cropped the dates from the charts intentionally. But I promise that in each case, investors were scared.

Want to guess what happened next?

[Spoilers below.]

It depends.

Our first chart was from 9/18/1987 – 10/19/1987. The huge single-day drop at the end is “Black Monday” — the worst day in U.S. stock market history. Here’s what happens when we zoom out and show the results through the end of the following year. (You can click the image to see it full-size.)

By the end of the 1-month period in the original image, the market had finished falling. The 28% decline was the extent of it. The market’s return over the next next year was positive.

Our second chart was from 9/10/2008 – 10/10/2008 (i.e., early stages of the global financial crisis). Here’s what happens when we zoom out and show the next few months of returns.

Point being, the 27% decline in the original image turned out to be only about half of the total decline this time. The market still had much farther to fall.

But, at least for me, when I look at the first two undated 1-month charts above, there’s no way I would have known which one marks the beginning of a recovery and which one marks the halfway point of a larger decline.

So what’s the third undated chart? The third chart is the fund’s 1-month return as of today.

And I have no idea what comes next.

So I’m doing what I do when I don’t know what comes next (which is all the time) — just sticking with my same, simple/boring all-in-one fund, continuing to invest steadily, and continuing to pay attention to all the other important aspects of financial planning (tax planning, insurance, monitoring spending, etc.).

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