Question of the Day: How did investors change their investment strategies in March after the 12% market drop?

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Apr 28, 2020
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Investing, Question of the Day, Stocks, Behavioral Finance

Answer: 

Questions:

  • In March 2020, the stock market had its worst month since October 2008. Based on the data in the previous table, what actions did investors take in March?
  • When investors sell stocks they convert one asset (stocks) into another asset (cash). What are the reasons you think that investors were selling stocks in March and holding more cash?
  • Your friend says, “Of course everyone knows the stock market is going to drop because of the pandemic. I’m going to wait until the stock market bottoms out before I invest.” What is one flaw in her thinking?

Click here for the ready-to-go slides for this Question of the Day that you can use in your classroom.

Behind the numbers (Forbes): 

Individual investors’ exposure to equities plunged to the lowest level since late 2011. The March AAII Asset Allocation Survey also shows cash holdings jumping to their highest level in more than a decade...Additionally, many respondents from this survey said that the market’s volatility and declining yields have pushed them to take a more conservative approach.

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Want to get a great visual on how the market is doing? Check out this NGPF Activity using the FinViz website

 

 

 

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.