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The Price of Panic

April 10, 2020 

Help clients avoid costly, panic-driven investment decisions during a crisis and remain focused on the long term.

Financial Advisors: This article is based off of our popular Media Replay module. Click here to access additional content to share.


Source: Worries About Coronavirus Surge, as Most Americans Expect a Recession – or Worse, Pew Research Center, 3/26/20


Today’s COVID-19 Pandemic is scary—so scary that “playing it safe” to avoid losing your money may seem like the only rational strategy. However in the past 50 years, we’ve seen repeating patterns of crises. Despite these crises, the market continues to be resilient. The Dow Jones Industrial Average rose from 800 points in 1969 to over 29,000 in February 2020.* But by March 23, 2020, the market dropped 34% from its all-time high, prompting many investors to change their investment strategy. But history shows that long-term investors who stayed the course through crises and didn’t lose sight of their financial goals have been rewarded.


What We’ll Cover

  • Stress, Anxiety, and Crises
  • The Risk of Mistakes
  • Maintaining Perspective in Crises


There’s Always a Reason to Panic: 30%+ Drops in the S&P 500 Index 1969–2019

When the market is declining and the news is depressing, the urge to panic and “play it safe” can be intense. How an investor chooses to respond to this turmoil can dramatically affect his or her long-term performance. Investors are more likely to find the courage to re-enter the market after things quiet down. Unfortunately, by this time, they’ve already missed much of the recovery. (Source: Ned Davis Research, 12/19) 



Middle East Oil Embargo




Black Monday: The Dow Jones Industrial Average Dropped 22% in One day



Accounting Scandals




WorldCom Collapse

Tyco Executives Indicted

Ford Closes Five Plants



Housing Bubble

Financial Crisis


First, Stress, Anxiety, and Crises

This crisis has most of us stuck at home and that means lots of news watching. From March 16-20, 2020 Fox News saw its ratings climb 89% over the same time last year, while CNN was up 193%, and MSNBC climbed 56%.1

In addition to more news consumption, we’re Googling CNBC more often to see how the market is performing. All this watching and Googling can make us more anxious about the economy. In a March 19-24, 2020 survey, 88% of Americans surveyed said the Coronavirus is a major threat to the US economy.2

When we’re anxious, we’re more likely to allocate our attention to information that’s negative.3 Given the choice between information that may offer an optimistic perspective or data that paints a bleak future, an anxiety-influenced investor will naturally focus on threatening information.

When Markets Fall, We Search—Especially for CNBC

Google Searches for CNBC vs. S&P 500 Index


This is a study of Google searches for “CNBC” compared with S&P 500 Index performance. The blue line represents the S&P 500 Index and the red line represents Google searches. Do you see a pattern? There’s a correlation between poor market performance and CNBC searches.

Past performance does not guarantee future results. See below for index descriptions. For illustrative purposes only. Indices are unmanaged and not available for direct investment.

Source: Google Trends/Factset, 12/19


Second, The Risk of Mistakes

Let’s face it, there are good reasons to be anxious about this crisis’ effect on our economy. It feels like the US has come to a sort of standstill. The effects of many shutdowns have rocked markets. The equity market has fallen 34% from its all-time high.4 Many investors have responded to that drop by trying to make their portfolios safer. US money market funds, which offer high liquidity with a low level of risk, were on track for a record-quarter of inflows, with $677 billion this year.5

Making a portfolio safer seems perfectly rational in this environment. Nobody likes losing money, especially when the market plunges. In fact, the pain of losing money is psychologically about twice as intense as the pleasure of gaining it.6 Since 2000, we’ve had some big losses. From 1970–2019, the market dropped more than 30% five times.7

Although safer investments can calm our anxiety when the market’s tumbling, choosing safety can be a mistake for long-term investors. The graph below illustrates how a hypothetical “reactionary” investor, who made their portfolio safe when the market dropped 30%, missed gains time and time again during market recoveries. The reactionary investor traded long-term results for short-term comfort.


The Price of Panic
$10,000 Invested S&P 500 Index 12/31/69–12/31/19 



The combination of market volatility and the constant drumbeat of negative news can make it difficult to stay calm—even for experienced investors. But giving in to panic by making abrupt changes to your portfolio could be detrimental to your long-term investment returns.  

Past performance does not guarantee future results. Equity returns are represented by the S&P 500 Index. Bond returns are represented by the Bloomberg Barclays Long-Term US Treasury Total Return Index. Reactionary returns indicate the results of an investor who invested in S&P 500 Index, moved 100% into 90-Day T-Bills each time the market dropped 30% and then moved 100% back into S&P 500 Index two years later. Balanced returns are represented by 50% S&P 500 Index and 50% Bloomberg Barclays Long-Term US Treasury Total Return Index. Cash returns are represented by 90-Day T-Bills.

Data Source: Ned Davis Research, 12/19. For illustrative purposes only. Indices are unmanaged and not available for direct investment.


Third, Maintaining Perspective in Crises

Nobody likes to go through a crisis alone. Trying to manage your investments by yourself in a crisis, with extreme market volatility, can be mind boggling. In March of 2020, the market dropped several times between 6–12% a day in both directions. One day the Dow Jones Industrial Average was down 2,000 points and a few days later up 2,000 points. We’ve recently heard “best day ever” and then “worst day ever” in terms of market point moves.

Many investors try to time the market’s ups and downs and change their portfolio investments accordingly. Research shows that this strategy hasn’t worked well for investors. Dalbar’s Quantitative Analysis of Investor Behavior studied has measured the effects of investor decisions to buy, sell, and switch into and out of mutual funds over short and long-term time frames. The results consistently show that the average investor returns are less—in many cases, much less—than market indices returns.8

Hopping in and out of investments to prevent losses or capture gains can be a primary reason why investors have underperformed the market. Anxious investors tend to overestimate the risk of holding stock investments and underestimate the risk of not holding them. In the past 30 years, individual investors underperformed equities (as represented by the S&P 500 Index) by an average of 4.92% each year and bonds (as represented by the Bloomberg Barclays US Aggregate Bond Index) by an average of 5.53% each year.8 The bottom line: investor behavior can determine success more than investment performance.

Individual Investors Have Underperformed Market Indices8

Average Annual Returns for the 30 Year Period Ending 12/31/2019


Past performance does not guarantee future results. Performance data for indices represents a lump sum investment in January 1990 to December 2019 with no withdrawals. Stocks are represented by the S&P 500 Index. Bonds are represented by the Bloomberg Barclays US Aggregate Bond Index. Indices are unmanaged, unavailable for direct investment, and do not reflect fees, expenses, or sales charges.


That’s why it’s important to have the support of a financial advisor who can help you control impulsive reactions to market volatility and practice disciplined investing. In addition to helping you find suitable investments for your financial goals, your financial advisor plays a more crucial role by acting as a counter to the market’s mind games that can tempt even experienced investors.


“But It’s Different This Time”

Many feel that this crisis is different than previous crises. It is. Every crisis is different. Today, with all the crisis news coverage, we’re feeling like today is bad and tomorrow will be worse. It’s easy to get overwhelmed with pessimism. But despite all the bad news, there’s amazing innovation taking place that won’t get media attention. Uber Elevate has a goal of offering flying cars, air taxis, by 2023.9

Ministry of Supply uses 3D printing to create clothing using NASA-developed material that regulates your body temperature and is 19 times more breathable than cotton.10 In 2019, researchers 3D-printed a heart using a patient’s cells. This technique may be used to heal hearts or engineer new ones for transplants in the future.11

Sometime in the summer of 2020, SpaceX, a private American aerospace manufacturer, is planning the first crewed launch from US soil since the end of the shuttle era in 2011.12 New screen protectors from OtterBox and Corning will contain EPA-registered antimicrobial technology that kills up to 99.99% of common microbes found on display surfaces.13

The US has experienced 25 bear markets from 1929–2019.14 Our recovery record? 25 for 25. While we can’t predict the future, as Warren Buffett has said, “It’s never paid to bet against America.”


Three Things to Remember About Maintaining Perspective

First, crises influence us to focus on the negative.2 The flood of 24/7 crisis news coverage can contribute to our anxiety about the economy. Second, that anxiety makes us more vulnerable to making investment mistakes that can damage our long-term results. Third, consider working with a financial advisor to help you maintain a long-term perspective through the crisis.


Next Steps

  1. Talk to your financial advisor to hear their perspective on this crisis. If you don’t have one, consider finding one.
  2. Download our Media Replay brochure below for more insights on crises and recoveries
  3. Email this article or share it on Facebook, LinkedIn, or Twitter

*Past performance does not guarantee future results. Indices are unmanaged and not available for direct investment.

Investing involves risk, including the possible loss of principal. • Fixed income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall.


Ratings Skyrocket for Cable News Amid Wall-To-Wall Coronavirus Coverage, Newsweek,

Worries About Coronavirus Surge, as Most Americans Expect a Recession – or Worse, Pew
Research Center, 3/26/20

3 Fear, Finance, and The High Anxiety Client, MIT AgeLab, 2016

4 Stock market live Tuesday: Dow drops 410 points, down 23% in 2020, Worst first
quarter ever, CNBC, 3/31/20

5 Investors pour $677 billion into U.S. money market funds, on track for record quarter
–EPFR, Reuters, 4/1/20

6 What Is Loss Aversion? Psychology Today, 3/8/18

7 Source: Ned Davis Research, 12/19

8 Quantitative Analysis of Investor Behavior, Dalbar, 2020

9 Aircraft, Big and Small, Are Changing Our Relationship With Flight, The New York Times,

10 Scientists from MIT and NASA helped make this one of the most comfortable dress shirts
you’ll ever wear, Business Insider, 10/31/17

11 3D Printed Heart with Patient’s Own Cells, Advanced Science News, 4/17/19

12 NASA, SpaceX Invite Media to First Crew Launch to Station from America Since 2011, NASA, 3/18/20

13 The OtterBox antimicrobial screen protector is now available, CNET, 4/6/20

14 Ned Davis Research, 1/20


Dalbar’s Quantitative Analysis of Investor Behavior Methodology - Dalbar’s Quantitative Analysis of Investor Behavior uses data from the Investment Company Institute (ICI), Standard & Poor’s, and Barclays Index Products to compare mutual fund investor returns to an appropriate set of benchmarks. Covering the period from January 1, 1999 to December 31, 2019, the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average investor.” Based on this behavior, the analysis calculates the “average investor return” for various periods. These results are then compared to the returns of respective indices.

Average equity investor and average bond investor performance results are calculated using data supplied by the Investment Company Institute. Investor returns are represented by the change in total mutual fund assets after excluding sales, redemptions, and exchanges. This method of calculation captures realized and unrealized capital gains, dividends, interest, trading costs, sales charges, fees, expenses, and any other costs. After calculating investor returns in dollar terms, two percentages are calculated for the period examined: total investor return rate and annualized investor return rate. Total investor return rate is determined by calculating the investor return dollars as a percentage of the net of the sales, redemptions, and exchanges for each period.

Links from this article to a non-Hartford Funds site are provided for users’ convenience only. Hartford Funds does not control or review these sites nor does the provision of any link imply an endorsement or association of such non-Hartford Fund sites. Hartford Funds is not responsible for and makes no representation or warranty regarding the contents, completeness or accuracy or security of any materials on such sites. If you decide to access such non-Hartford Funds sites, you do so at your own risk.

Hartford Mutual Funds may or may not be invested in the companies referenced herein; however, no particular endorsement of any product or service is being made. This material is provided for educational purposes only.

Index Descriptions

Indices are unmanaged, and unavailable for direct investment, and do not represent the performance of any Hartford Funds.

S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.

Bloomberg Barclays US Aggregate Bond Index is composed of securities from the Bloomberg Barclays Government/Credit Bond Index, Mortgage-Backed Securities Index, Asset-Backed Securities Index, and Commercial
Mortgage-Backed Securities Index.

Bloomberg Barclays US Treasury Long Index measures US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury with 10 years or more to maturity.

Additional Information Regarding Bloomberg Barclays Indices Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”).
BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg
Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained
therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.