World stock markets were hammered on Monday, February 24^th as investors headed for the exits because of rising coronavirus worries, especially an unexpected surge in infections outside of China, mainly Italy and South Korea.

Wall Street suffered its worst loss in 2 years on Monday, as investors fled to the perceived safety of gold, Treasuries and the U.S. dollar, pushing the major U.S. markets into the red for 2020.

Here’s where markets settled at the close:

• S&P 500: -3.35%, down 111.86 points to 3,225.89
• DJIA: -3.56%, down 1,031.40 points to 27,961.01
• NASDAQ: -3.71%, down 355.31 points to 9,221.28

The declines in the United States were on the heels of steep losses in Europe and Asia too, including:

• South Korea\’s Kospi Index lost 3.9%
• The FTSE MIB Italy Index dropped 5.4%
• The United Kingdom\’s FTSE 100 fell 3.3%
• Europe’s Stoxx Europe 600 Index gave back 3.79%
• Germany\’s DAX declined 4%
• The French CAC 40 retreated 4%

Let’s put aside all the negative numbers and consider what we can learn from this recent drop.

Discipline is Important

Successful investing comes down to discipline. Ever wonder why aren’t you reaping the returns you read about in the financial press? Or why your returns are worse when you compare your investments to the overall markets?

The answer is simple: Your emotions get in the way. That’s what financial advisors are for – to help you stay the course and make rational decisions.

A research firm named Dalbar does tons of research on investor behavior. Here’s what they found and what you need to remember:

• Emotions too often drive investors to make poor decisions.

According to Dalbar, investors consistently get returns worse than those of the market because they buy high and sell low. If you ever have a conversation with a friend about being scared after a downturn, you fall into this category.

You are going to underperform, even if you completely track the market with index mutual funds, because of yearly fees. They could be as low as 0.1% of your assets or as high as 2.5%. But if you have low-cost funds and you still do less than half as well as the market, the problem is probably you, not the fees. You made bad choices, such as panicking during a correction or slump.

It’s really hard to stay the course when the world seems to be falling apart. You might feel that, if you don’t get out when your investment drops, all of your money might disappear. That’s faulty thinking.

Recency Bias

This brings us to another behavioral trap called recency bias. This fancy term means that we tend to pay a lot more attention to what happened in the recent past than what happened historically or what is likely to happen. This is why, when the market goes down, you think it’s going that way forever. When the market is hot, you believe that there is only one way it can go – up.

If history is any guide, getting out when things look really bad is not a great idea. An experienced investor certainly knows that when the market seems at its worst, it’s a time to buy. Better yet, just keep investing, and let the market do what it’s going to do.

Research shows that staying the course is most likely to help you reach your goals. If you’re looking to invest for 10 to 15 years or more, what happens today, this week, this month, this quarter or even this year doesn’t make a big difference in your final outcome.

It all comes down to discipline and circles back to the role of your financial advisor. Financial advisors are here to help investors understand the history of the market and talk with them when they get over-excited or scared.

If you have great self-control, a financial advisor might not be necessary. But if you are not a disciplined investor, you might get some great value from an advisor who can talk you off the ledge. This is the role advisors play with their clients.

It’s likely the most valuable service an advisor can provide. Are you interested in speaking with one of our financial advisors? Click HERE to schedule a time to meet with someone from our team!