Outside the Box: What John Bogle might say about the coronavirus — and your investments

The late Jack Bogle, founder of Vanguard Investments, had this famous advice for his investor clients: “Don’t do something, just stand there!”

It’s a funny line, one that captures the essence of his long-term investment philosophy. In short, the more you move your investments around the higher the chance you will lose money or, if not outright losses, make far less than you would by leaving things be.

Sure, you might say, but aren’t things different now? The spread of the coronavirus, the dramatic slowdown in society, in the economy, all of that surely means much lower stock prices, right?

Of course it does — in the short term. We’re already seeing the impact. But that doesn’t mean you should “do something” about it. In fact, Bogle’s point remains as important as ever.

I recently spent time talking live with clients online about exactly how they should react (or not react, as Bogle would argue) during a suddenly volatile stock market SPX, -0.69%. The presentation was originally meant for clients only, but a recording of the presentation, complete with slides, is now online for anyone who might need reassurance in these rocky times.

Here are a few of the main points I make in the presentation. I hope these ideas will help you feel more confident in your own investment decisions.

READ: Warren Buffett’s latest advice could help you retire a lot richer

Things will get worse, but the stock market already knows that

This virus that we’re facing, the coronavirus, will get worse before it gets better. As we have more testing available, more people will be diagnosed. There will be more cases.

As we all know, there are all kinds of measures now in place to mitigate the spread and “flatten the curve.” Schools and workplaces are going online. Mass gatherings are being canceled. We know that our health care system is overloaded and likely to remain overloaded.

All of this could lead to a recession. We don’t know. What we do know is that analysts are revising their earnings projections and that is leading to quick moves in the market. Largely this is being done by professional traders using algorithms that are programmed to buy and sell as triggers are hit.

Coronavirus is bad for the economy, but it’s not the same as 2008

This is not the financial crisis of 1987 or a credit crisis like 2008. Many of us went through 2008. If you recall, there was $3.5 trillion to $4 trillion in money market accounts at risk. We don’t have anything close to that right now. The financial markets are highly volatile, but they are operating smoothly and with liquidity.

We’re not talking about one of those previous crises. We’re talking about a different one. As the risks subside the markets will come back, and they will come back fast and decisively, even if the problems are worse. Again, markets are looking for data. They’re looking for information. They’re trying to understand what the future will look like.

Being human is actually a problem when it comes to investing

When you see your account and you see a lot of red and see your money going down, you have a fight-or-flight response. It’s actually chemical, in our bodies. Our mouths get dry. Our breathing gets fast. Our heart starts pounding. Our muscles tense. We’re ready for a fight.

So that is what happens to us physically. But it’s not an investment strategy. This emotional stuff is stoked further by watching the news and reading things that might try to lead us to act, to “do something,” as if we must do something. In fact, emotions, hunches, the gut feelings we have about investing typically lead to disastrous results.

Watch what the truly big investors are doing

What you don’t see out there are the investment committees of the biggest and most successful endowments in the world, the foundations and big retirement pools, calling emergency meetings, panicking, selling and going to cash. What’s probably happening over at Berkshire Hathaway BRK.A, -2.56%BRK.B, -2.52% is that Warren Buffett is buying. I doubt that he’s selling.

Also, do you really think anybody knows when to get out and when to get back in? As Bogle put it, “If somebody tells you to get out of the market, before you do, remind them to tell you when to get back in.” So, let’s just hit the pause button.

Take a step back and look at the big picture

You’ve got to remind yourself that this, too, shall pass. Visualize a year from now looking back at this as things resolve themselves. In a world with ultralow interest rates — and they just got a lot lower the last couple of weeks — we have to own stocks, most of us, to achieve our financial goals.

Really, if you want to make changes in your portfolio, those choices have to do with you and your life, not the markets. It’s about making sure your allocations are consistent with what you need to do in your life, not what’s happening in the news. Because we assume that these kinds of things are going to happen in the market.

A financial plan can help you project past short-term chaos

Everything has to do with your time frame. When you have a financial plan it takes into consideration all of your personal factors, your house, what you’re making, what you will make, expenses, maybe money to take care of parents, take care of kids, inheritances, college, taxes, Social Security, etc. — all of your unique factors.

If all that is in your plan, and that plan is driven by an investment return on a consistent basis that we think should occur over the next few decades, then you can say, “Well, OK, last year was a great year. We were up 20-something percent. We gave a lot back this year. We think this will recover, but if we stick on our plan we’ll be OK.” A plan helps you do that.

And no, this is not the end of the chaos

Until more data is out there about what’s going on, the stress is going to continue and it’s going to be a wild ride. Investing, however, requires that you tame your fight-or-flight instincts.

Most bear markets recover in a year. If your personal plan has not changed, then we strongly urge you, as Bogle would, to stay the course.