In April 2020, a relative received the quarterly statement for her retirement account. She gasped at the numbers. The value of the stocks she and her husband owned had plummeted, leaving them feeling poor and looking to economize. When our own quarterly statement arrived soon after (for a Roth IRA), I gulped at the nearly 25% loss in value.

The best advice, then and now, is that unless you need the money immediately, or are required to take some of the money—as happens in traditional, non-Roth, IRAs when you reach a certain age—then just shrug it off. The stock market will recover, eventually.

The worst thing to do is react to every upward or downward market movement. In the long run, the huge gains or colossal losses we live through become mere blips in the bar graphs of history. Time is on your side, especially if you haven’t retired yet.

As for our Roth IRA, our account regained some of its value in the second quarter, some more in the third, and the fourth-quarter statement showed the account had regained all its lost value, plus it had increased more than 10% additional. So, it was worth more than before the first-quarter 2020 market plunge.

As you may have guessed, that first-quarter 2020 plunge was a reaction to the pandemic. The brave responded to that plunge by investing even more money. They did quite well. Most of us, though, don’t have extra money lying around to invest when the market nosedives. But as long as we don’t panic or bail out, we should be good. Those who cashed in their devalued holdings are now much poorer.

All this assumes your investment is in a diversified fund. If your money is primarily in one or two specific stocks, there will be more risk. I’m not opposed to buying specific stocks. I’ve done so a few times. But you have to be careful.

Choosing a stock is a form of gambling. You can increase the odds a bit, make your investment more likely to prosper, but it will still be a gamble.

I’m not here to promote particular stocks. But certain industries (such as power companies) are generally stable and aren’t likely to go suddenly bankrupt. Long-established, long-term-profitable players such as AT&T, Exxon, Johnson & Johnson and Proctor & Gamble are good examples of this.

Proctor & Gamble shields itself from collapse by not being in one particular business. It instead owns companies in scores. For instance, Tide, Gain, Mr. Clean, Oral-B, Tampax, Pepto-Bismol, Scope, Crest, Ivory, Head & Shoulders, Gillette, Charmin and Pampers are all fully owned by Proctor & Gamble. I’ve never owned their stock, but it’s a diversified fund in itself, because there’s no way all its companies will go bankrupt.

If you buy a stock, don’t get overconfident. 

There used to be an expression, “As General Motors goes, so goes the nation.” 

It was a reliable stock, but during the Great Recession, General Motors found itself floundering. I was working in the stock industry then, and advised anyone who would listen to sell their GM stock, that the company would go bankrupt, leaving the stock worthless.

My supervisor didn’t believe me. When I offered to wager on it, he declined, knowing my bizarre predictions had come true too often. GM tried to sell off some of its brands (it sold Saab) but couldn’t find buyers for Hummer, Pontiac, or Saturn, and pulled the plug on those companies.

Then one day its stock went up a good deal in value. That was in response to its signing a long-term labor deal with its unionized workers. 

“You see?” my supervisor said. “It’s going back up now. It’s not going bankrupt.”

I shook my head. “GM just signed a labor deal they can’t afford to honor. It may buy them some time, but they’re still going bankrupt. They can’t pay their workers what they just promised to pay them.”

And that’s what happened. Bankruptcy in 2009. The stock became worthless. GM emerged from bankruptcy and from the Great Recession in a stronger position, and with newly issued stock of some value. But this newly issued stock was in the “new” GM. Any shares of stock in the “old” GM were worthless. Investors were wiped out. 

The GM lesson is that even seemingly stable companies with great track records might quickly vanish or become mere shells of their former selves (such as Polaroid and Eastman Kodak).

Another lesson: Avoid companies that have never made a profit (all those dot-com stocks that went belly-up) and companies that can’t clearly explain what they do (Enron). Even power companies occasionally go bankrupt (Pacific Gas & Electric - twice!) or disappear from the scene (Long Island Lighting Company).

Munching a banana at work, I realized no computer could make a banana. So, I bought a thousand dollars’ worth of stock in Chiquita. No gamble there, right? Bananas won’t be replaced with e-bananas or digital bananas, that’s for sure. What could be safer than bananas?

Yet, Chiquita got caught in a scandal (involving paying protection money to paramilitary thugs in South America) and as a result began its bankruptcy spiral. Stockholders got back a few pennies per dollar for their stock, but they still lost out. Lesson learned. There is no such thing as a guaranteed-safe stock.

Did the pandemic derail your financial goals?

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