The Coronavirus pandemic is a main topic of conversation whether you’re at work, with friends or at a family dinner. And while there’s plenty of speculation of how it began or when it will stop, there are concerns of deceleration of economic production, with declines in China (the second largest economy) and travel, and disruption to non-Chinese markets.
So, when is this coronavirus pandemic going to end and is this an investment opportunity or a time to run to safety?
The S&P 500 Index and Dow Jones Industrials fell around 11-12 percent in the course of six days – the last decline of that size took about three months at the end of 2018. Then we had two of the highest single day point gains in history as of mid-week of Super Tuesday. In addition, there’s been a flurry of action for containment from healthcare and pharmaceuticals, travel restrictions, and governments and agencies, including the Federal Reserve Board’s surprise 50 basis point interest rate cut.
Downturns are not fun. Many people want to know if they’re going to be ok financially. While it’s too early to tell the course and severity of COVID-19, history and experience provide valuable lessons that can help you manage through this and future pull backs or declines.
Revisit Your Game Plan
What was your response–to panic sell into a double-digit market drop or did you follow your plan? The investment plan is only one spoke of your personal financial plan. The others include cash flow management, tax reduction, estate planning, risk management (insurance), and using your business and employee benefit programs. Also, changes in the investment plan are driven by your goals and financial plan – not driven solely by market conditions.
Remember Why You Invest – Keep the Big Picture in View
There is no one-size-fits-all financial or investment plan. It should be tailored to your goals including maintain your lifestyle or protect your loved ones – keep them in mind as you make decisions. If your goals are achievable by playing it safe – burying savings in the backyard or bank accounts – then do so. However, if you need to earn a decent return, then you’ll have to take on risk and manage it accordingly. If you can’t sleep at night with that risk, then downshift your goals. It’s pretty simple – life has its tradeoffs.
Retirees – Market Declines Become Bad News if You Have to Sell
Savers should love declines – it’s an opportunity to buy at cheaper prices. But retirees may feel otherwise. Consider fine-tuning your investment plan such that you have plenty of liquidity, investment earnings and cash to fund two or three years of withdrawals. That way you’re prepared for bear markets – your equities will have time to recover and you harvest those gains later. Always consult your investment fiduciary.
We’re in correction territory. If you need to adjust your investment strategies, it’s better to make them before market corrections occur – avoid switching horses midstream. Rather than focusing or worrying about things you cannot control; focus on those that you do. Don’t underestimate the power of human grit and ingenuity. We’ll figure this out and another ‘end of the earth’ crisis du jour will be avoided. Secure your future wisely.
This article can also be viewed at the Reno Gazette Journal.