If you have been watching the markets’ response to the recent worldwide Coronavirus outbreak (COVID-19), you may wonder about the status of your investments. There’s no question that this health scare has had an impact on the markets, both in terms of stock prices and the recent bond rate slash by the Federal Reserve.
While it’s too early to say for sure how Coronavirus (or any future global health crisis) could impact your investments and retirement accounts, we can look to patterns over time to learn more about how the market might recover.
Coronavirus and the Stock Market
As news of the COVID-19 virus’s rapid transmission spread, many corporations worldwide closed their doors or requested that employees work from home. Though initially, most of this occurred at the epicenter of the outbreak in China, U.S. companies like Microsoft, Apple, and Amazon have recently followed suit. Many media and tech giants pulled out of the annual South by Southwest (SXSW) conference, and companies like Verizon and Blackrock have temporarily grounded all international corporate travelers.
Global markets have taken a hit as investors worry about these industrial and corporate freezes. On March 6, the Dow Jones Industrial Average opened 2.7% lower than the day prior, and both the Nasdaq and the S&P 500 showed similar drops. In London, the FTSE 100 share index fell more than 3%, and other markets across Europe and Asia showed similar declines.
The Cyclical Nature of Markets
Markets are inherently cyclical, which is evident if you consider trends over the last 80 years. Even large declines like the so-called Great Recession of 2008 have rebounded with time. In an otherwise healthy economy, statistics are very much on the side of a complete eventual recovery.
There is nearly always a particular trigger for a sudden stock market crash (in 2008, it was a delayed bank bailout bill and mortgage-backed securities built on subprime housing loans). It stands to reason the market will recover from the Coronavirus outbreak once the disease is better understood and contained. As corporations return to business-as-usual, we will likely see an uptick in investment value.
How to Respond to a Market Downturn
Though you can’t control swings in the market, you can control your response. Here are several key strategies for dealing with market volatility:
- Don’t panic. Markets rise and fall, and all economic models suggest an otherwise healthy economy will see an uptick again at some point. Selling because you are afraid of losing money is never a good idea.
- Avoid obsessive market-watching. Keeping an eye on your investments is a fine thing, and you can rely on DirectAdvisors, your fiduciary investment advisor, to help you do so. However, markets swing daily even under more normal circumstances, so keeping too close on eye on things may cause unnecessary stress.
- Don’t sell. It can be tempting to sell of your investments during a market downturn in an effort to safeguard your assets. If at all possible, do not do this. Leave your money invested and, if feasible, continue contributing to your retirement accounts as you usually do. A slow period for the markets is a great time to buy low-priced stocks. If you have enough of a time horizon before retirement, this is a strategy your retirement advisor may recommend. If you are very close to retirement, it’s a good idea to request a meeting with your advisor before you make a move.
- Don’t try to time the market. No matter what you plan to use your investments for, you should never try to time the market. It is extremely risky.
Rely on Your Team
You’ve built a trusted team for moments exactly like this. Turn to your fiduciary partners at DirectAdvisors for advice about how to respond to the COVID-19 outbreak when it comes to your investments. We hold a number of prestigious industry certifications, including a CEFEX Fiduciary Certificate of Completion, and we have the expertise to guide you through this market downturn. Contact us today!