The Coronavirus and Market Volatility We want to take a moment to update our valued clients on our thoughts related to the coronavirus, its impact on the financial markets and ultimately, on your personal financial situation. Moving into this New Year, many stock markets around the world were trading near all-time highs including major indexes in the US, Canada, UK, and Australia.
In fact, since the end of The Great Recession in 2009, many stock markets around the world have seen a doubling or tripling in price. In the US, for example, the S&P 500 index, a broad measure of the stock market, saw its price increase from under 700 in March 2009 to over 3,300 last month. Of course, markets don’t go up forever. Sometimes, they just flatline for a while as company earnings catch up with stock price valuations. Other times, they see violent drops that make big headlines, like the “Black Monday” stock market crash on October 19, 1987 that was felt around the world.
Today, the coronavirus is triggering a steep stock market selloff around the world. As of this writing, major market indexes in the US, Europe, Japan, and Australia are down 10% or more from recent all-time highs, according to The Wall Street Journal. Top investor Warren Buffett famously wrote, “It’s only when the tide goes out that you learn who’s been swimming naked.” Well, the tide is going out. The good news is, as stewards of your financial well-being, we prepare for situations like this even though we never know what may trigger them.
Here are a few key points we’d like you to keep in mind as we work through the unfolding virus situation and its impact on you and your financial situation.
Firstly, fear is a natural reaction. We’re human and as humans, we’re hardwired to react to situations that threaten us. In this situation, we have a double whammy of fear. There’s the virus that can cause us bodily harm and the market reaction that can cause us financial loss. Related to the virus, nobody knows how bad the situation will get. All we can do is take appropriate precautions and trust that the scientists and researchers will find a way to eradicate it sooner rather than later.
By contrast, your reaction to the financial markets is something within your control. We know it’s no fun seeing your portfolio drop. But we also know market volatility is normal and expected. The key is to zoom out and look at the long-term big picture. Your investment portfolios have been carefully designed by us to support your long-term objectives, not today’s needs. And just like in farming, where we know there will be some lean years when Mother Nature doesn’t cooperate and other years when there’s a bumper crop, the financial markets are similar.
Financial markets react to shocks to the system and we are seeing one now. In situations like this, our job is to bring perspective, to help you see that swift market drops are not unusual. Yes, the headlines are scary, and they can bring our “fear” instincts to the surface. We believe the best response is to acknowledge what you’re feeling, reach out to us if that would be helpful, and have confidence that we are on top of the situation.
Secondly, Accumulus Wealth Advice clients should have confidence that we have considered a wide range of possible outcomes, both good and bad and that they each have a personalised, long term plan they can stick to in a variety of conditions. The strategies we deploy and the portfolios we manage are designed to withstand the inevitable bouts of volatility that come from a future which
will always be uncertain.
Thirdly, as you should expect we are closely following the situation and will adjust if warranted. Sometimes, situations like this create opportunities for you. For example, as prices drop, we may have an opportunity to “rebalance” your portfolio and shift your asset allocation to get your portfolio back to a desired mix that is most appropriate for you.
Finally, we can’t tell you when things will turn or by how much, but our expectation is that bearing today’s risk will be compensated with positive expected returns. That has been the lesson from previous health crises, such as the Ebola and Swine Flu outbreaks earlier this century, and of market disruptions such as the GFC of 2008-09. Additionally, history has shown no reliable way to identify a market peak or bottom. This evidence argues strongly against making market moves based on fear or speculation, even as difficult and traumatic events transpire.
Amid the anxiety that accompanies developments surrounding the coronavirus, the decades of financial science and the long-term investing principles we adhere to for our clients will remain our strongest guide. We are here to help as our clients’ financial well-being is our number one objective.