After the Dow Jones Industrial Average closed at a record high of 29,950 on February 12th, 2020, the index experienced its fastest crash in history, dropping nearly 11,000 points from February 20th to March 23rd. Concerns about the COVID-19 pandemic, nationwide business shutdowns, and other factors combined to shake investor confidence and spur a massive market selloff that lasted for over a month. After this rocky period, quantitative easing and stimulus measures put the Dow on the path to recovery, but it would take about 9 months before it returned to its previous highs. On November 24th, the Dow crossed the 30,000 mark for the first time in its 120-year history. At this point, many investors breathed a sigh of relief, believing their troubles were over. Of course, the stock market has a reputation for inconsistent performance and volatility, and in these difficult times can we really be so sure the economy is back to normal?
Millions of Americans in or near retirement around the country are invested in high-risk securities, and they depend on stock market indices like the Dow Jones to maintain their record-breaking performances. If another crash should occur, those investors stand to lose millions of dollars in at-risk retirement savings, and most retirement savers simply do not have the time to recover their lost assets. The Dow Jones finally hit 30k, which is a great sign for an overall economic recovery, but are those levels sustainable in an uncertain economic climate?
Factors in The Dow’s Recovery
While higher stock market numbers may seem like a good omen, the Dow’s recovery in 2020 could end up being a house of cards. When it falls, it could spell disaster for Americans in or near retirement all over the country. One factor in the post-COVID crash recovery was the Federal Reserve’s program of quantitative easing (QE). This bond-buying schedule was like the one that aided the post-2008 economic recovery and there is little doubt that QE helped to smooth markets and create the conditions for the stock market’s current success, but even the man who quarterbacked QE in 2009 — Andrew Huszar — has little faith in the long-term ramifications of the Fed’s bond-buying program for the American people. From March to December of 2020, the Fed increased its holdings of Treasury bonds and mortgage-backed securities from $3.9 trillion to $6.6 trillion. While those purchases were intended to taper off as the economy recovered, they have continued, and are likely to continue well into 2021. If the Fed cannot maintain its current level of spending, the band-aid provided by QE could fall off, leaving the stock market and the economy on shaky ground.
Other factors in the Dow’s recovery included slashing interest rates, providing direct monetary stimulus to American families, and low-interest loans for businesses. By providing direct payments and easier access to credit, the Fed hoped to kick start the struggling economy with an influx of consumer spending. These measures proved to be successful in certain sectors of the economy, but that success could be short-lived. After months of back-and-forth, Congress and President Trump finally came together and approved a second stimulus bill before the end of the year and averting a government shutdown, but the stimulus is significantly smaller than the first one, and its effects will not be as long-lasting. As for interest rates, they are currently near zero and could potentially turn negative as the Fed has few options should the markets crash again in 2021.
Keeping Your Nest Egg Safe
You may look at the Dow’s recent success and think we are out of the woods, but as you can see, this recovery may be smoke and mirrors. Your nest egg may have survived the COVID Crash, but the next one could cripple your retirement plans. Especially if the economy struggles to restart in the new year and continues to experience volatility, traditional investments could witness interest rates cut even further, dropping into negative territory, rendering bonds, certificates of deposit, and savings accounts worthless for the retirement investor. Although the stock market reached new record highs, it is important to remember the adage for investing: buy low and sell high. If you are interested in finding out more about safer investment alternatives designed to protect your retirement savings from stock market crashes, the licensed retirement phase experts at Crash Proof Retirement® are here for you. The Crash Proof Retirement® team has already educated more than 5,000 Americans in or near retirement to find safer ways to save for the future using the exclusive Crash Proof Retirement® System. Call 1-800-722-9728 or visit crashproofretirement.com today for more information about how the revolutionary Crash Proof Vehicles can be your ticket to a secure retirement.