We didn’t know what would cause it, but we said it would happen eventually. The possible reasons were many, the trade war, North Korea, Middle East tensions, the President’s tweets, the Democratic primary, impeachment, the November election, etc. Forty-five days ago, no one predicted that it would be the Coronavirus (COVID-19) that would cause a 10% drop in the S&P 500 in the past 6 days after reaching an all-time high on February 19th (source: Morningstar).
But it’s happened, and the virus is here. Now what?
There are 2 ways to look at this situation, from a human perspective and an investor perspective.
First, the impact on human life is at the forefront of everyone’s concerns, as it should be. We trust that governments, businesses, and citizens will do everything they can to prevent the spread of the virus. We pray for the victims and their families and that the spread of the virus and the loss of life is minimized.
Second, from an investor’s perspective, the market is clearly telling us that there is an economic impact. Economic activity is slowing; supply chains are being disrupted, industries like cruise lines, airlines, hotels, and others will be affected as people are putting their travel plans on hold. This all creates uncertainty about future economic growth rates.
While more equity market weakness is possible if the virus continues to spread globally, the risk could be limited as governments and global central banks have tools in their arsenal to combat the potential death toll and economic impact.
So, what should you do? Have a plan, be patient and be prudent.
It is expected this “crisis of the moment” will also pass. We will continue monitoring events, but it is important for you to know that as an Odyssey client, you have a personalized financial plan. We’ve likely discussed having cash reserves and/or fixed income in your portfolio in preparation for the next recession or market correction, as is the case right now. We’ve also intentionally invested your wealth in a broadly diversified portfolio to minimize the impact of one stock, one sector, or one country.
Should you sell some of your stock funds to “wait it out until things get better?” That’s an interesting thought but much easier said than done. If you sold now, after already experiencing the 10% correction, how do you know when to get back in? And if this decision be based on emotion, then how likely are you to be able to overcome your fear and actually be able to get back in? The change for the better will happen quickly, quicker than we expect, and timing it right will be almost impossible. We don’t advise a timing strategy.
As we’ve advised during various prior market/economic crisis, staying the course is normally the best option, but we are happy to discuss your specific situation; especially if any changes have occurred. Please call us if you want to talk. We are here to help.