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Reacting to the coronavirus, stocks suffered some of their sharpest and quickest losses ever this week, with the stock market dropping 15.8% from the recent highs in just a few days.
Unless you have ice water running through your veins, you are most likely concerned about the coronavirus – the health threat that it poses and the impact that it’s already had on your investment portfolio.
We’ve received concerned phone calls, so we wanted to share with you our perspective, and remind you that now is not the time to abandon your long-term strategy and sell into the current downturn. We’ve been through these downturns before, and while it may seem scary in the moment, the important thing is not to let the panic tempt you into making a bad decision.
Billionaire investor Warren Buffett makes this point well: “Be fearful when others are greedy and greedy when others are fearful.”
While this disease is worse than the common flu it is not the plague. So far, we have 60 reported cases in the U.S. and no deaths. The flu causes almost 84 deaths each day (2017-2018), yet we travel, interact, and go about our daily lives without living in fear or isolation.
Unexpected outbreaks like the coronavirus are nothing new. We experienced viral and bacterial outbreaks in 2002-2003 with SARS and in 2012 with MERS without the world economy falling into a depression. It seems likely that this event will play out over the course of 3-4 months, and we are nearly two months into this one already.
The Market Overreacts
Unexpected shocks to the stock market like we’re seeing now are quite common. If it’s not coronavirus, it’s a government shutdown, a natural disaster, a terrorist attack, a sovereign debt crisis, or a trade war. The stock market reacts to unexpected shocks nearly every year, and often (as we believe is happening right now) the market overreacts.
Some corrections are more serious and long-lasting than others, but most are temporary and completely normal. In fact, from 1980 to 2015, despite finishing up for 27 of those 35 years, the stock market dropped an average of 14.2% at some point during the calendar year.
Travel, leisure, and companies dependent on China for their supply chains will be particularly hard hit, but once we see the outbreak peak or get a bit of good news, confidence should start to recover, worldwide economic activity should pick up again, and life will eventually return to normal.
So What Should You Do About The Recent Selloff In The Stock Market?
For most of our clients, the best advice we can give you is to do nothing. The likelihood is that your asset allocation (i.e. your stock and bond mix) is aligned for your age, and your investment portfolio is positioned to handle a downturn. When your asset allocation is aligned for your age, losses you’re seeing in the stock market do not translate directly to sharp losses in your investment portfolio – especially if you are close to retirement or if you are already retired.
And for our clients who have a lot of cash on the sidelines or who were lower in stocks heading into this downturn, we’ve been buying.
This is not the time for selling. Nothing is fundamentally wrong with the U.S. economy. It may take weeks or months for the market to recover, but we don’t view the coronavirus as a catalyst for far worse economic and stock market woes to come.
*For more on the coronavirus, listen to the One Minute Retirement Tip with Ashley, episodes 505 – 511 >>> https://apple.co/2TgPCHz
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