Coronavirus and the Markets

March 17, 2020

2020 has already been challenging on both the national and global stages. The coronavirus pandemic has quickly sent the world into a state of panic and fear, as businesses and schools shutter their doors, and government agencies advise “social distancing” to prevent the spread of the virus community-wide. It is clear that we are dealing with a health crisis of vast scale and proportion. Our thoughts go out to the families whose lives have been completely upturned by this virus, and to the health care professionals who are on the front lines. Our nation’s health, safety, and well-being are of the utmost importance at this moment, and we hope that developments coming from Washington and the Federal Reserve this week can help ease the burden for those who have been most affected.

Between the pandemic and other geopolitical tensions, such as the recent oil price dispute between Russia and Saudi Arabia, the markets have also been on a rollercoaster ride, with each day bringing more uncertainty. The headlines tell us that we are living in an unprecedented time.

For some of us, it seems like only yesterday that it was 2008, when the stock market dropped in value by almost half. Being a decade removed from the crisis may make it easier to take the past in stride. The eventual rebound and subsequent years of double-digit gains have also helped in this regard. But while the events of the crisis were unfolding, a bright future looked anything but certain.

Of course, we know that being an investor today, and during any period, isn’t exactly a stress-free experience. But the feelings of panic and fear felt by many during the financial crisis were distinctly acute. Many investors reacted emotionally to these developments. Some decided they had enough and sold out of stocks altogether.

On the other hand, some investors decided to stay the course and stick to their investment strategy, while chaos and panic-selling ensued. These investors eventually recovered from the crisis and benefited from the subsequent rebound in the markets.

We’re facing a similar moment in history now. It is important to remember that the financial crisis of 2008 was not the first in which periods of substantial volatility have occurred.  The good news is that we keep these three important factors in mind:

  1. Discipline: Stay focused on the factors within your control and maintain an investment strategy you can stick to through a variety of market conditions, both good and bad. 
  2. Diversification: If you have a balanced investment portfolio, invested in various different sections of the market, you are better positioned to weather turbulent market movements and to capture higher expected returns wherever they occur.
  3. Asset Allocation: Make sure that your asset allocation matches your risk tolerance and time horizon for achieving your goals, and is aligned with your overall financial plan.

We’re prepared with a long-term perspective, appropriate diversification, and an asset allocation that aligns with your risk tolerance and goals — these tools help us remain disciplined enough to ride out the bumps along the way. We also play a critical role in helping you work through these issues and in counseling you when things look bleak.

As we mentioned earlier, there is no questioning the emotional, physical, and mental toll that the coronavirus pandemic has caused, particularly for those with family members and loved ones affected by the virus. While we participate in social distancing, maintain strong personal hygiene, and follow the guidelines outlined by the CDC and WHO, it’s important to “keep calm, and carry on.”

We must apply the same mindset to the financial markets. Predicting future events in the markets correctly — let alone predicting how the markets will react to them — is difficult to do. However, what is certain is that market volatility will always be a part of investing. To enjoy the benefit of higher potential returns, investors must actually stay invested long enough to see the other side of the storm.