What should Investors do during the Coronavirus Pandemic?
Anyone who is semi-conscious realizes that the financial markets have been on a rollercoaster ride with a steep downward trajectory due to the global reaction to the outbreak. In fact, last week the markets entered Bear market territory for the first time since March 2009. To put some perspective on market terminology, a correction is a 5% drop in the market. If the market reaches a 20% downturn, this is considered a Bear market. After the president spoke on Friday, March 13th, the markets rallied with the DJIA, the Nasdaq and S&P 500 all exceeding 9% increases by days’ end.
This certainly doesn’t mean the volatility is over and as we always tell clients; past performance is not a guarantee of future returns. We can expect to see continued volatility until the public believes the spread and severity of this outbreak is coming to an end. What should the average investor do during these uncertain times?
First do not panic. Although this has been one of the fastest declines historically, we have been here before many times. I will go through some numbers in a bit to bring past outbreaks and Coronavirus into some perspective. This is a time to rely on facts not emotions. Yes, it is a fact that equity portfolios are down in value. It is also a fact that if one decides to sell their equity holdings now, they will incur a loss.
All investors should be invested for their specific needs i.e., to meet stated goals, the time horizon before beginning withdrawals of investments, the level of risk adversity an investor can tolerate from market volatility, the amount of liquidity needed. These are some of the many considerations which need to be given to your investment allocations. The longer an investor has before drawing from the investment normally allows for more investment in equities. The shorter the term would suggest allocating more towards fixed income investments.
Investors should have already allocated to match the above needs before this event occurred. If that is the case, then you should realize that this too will pass. If you have not already allocated appropriately to meet your specific goals and needs, then your ride may be a little bumpier. The big question becomes how long for market recovery?
While no one can predict the future, we can certainly look back in history to see how markets recovered from past outbreaks. Our firm did just that. Dow Jones Market Data gave us a great look back all the way to 1981. That year the market was affected by the HIV/AIDs outbreak. This was the only year between 1981 and 2019 that the S&P 500 was down after six months (-0.3) and after one year (-16.5%) in what is believed to be a response of an outbreak. All other outbreaks had recovered to positive numbers after six months and only one had a negative return after one year. That was in 2014 during the Measles / Rubeola outbreak; the S&P 500 was down -0.73% one year later. You might be thinking that we have not had very many outbreaks in that time period. You would be wrong.
Between 1981 and 2019 we have had a dozen outbreaks. They are as follows: HIV/AIDs June of 1981, Pneumonic plague September of 1994, SARS April of 2003, Avian flu June of 2006, Dengue Fever September of 2006, Swine flu April of 2009, Cholera November of 2010, MERS May of 2013, Ebola March of 2014, Measles / Rubeola December of 2014, Zika January of 2016, Measles/Rubeola June 2019.
To reiterate the above point. Regarding all twelve of those outbreaks, only HIV/AIDs in 1981 was still negative at -16.5% after one year and Measles/Rubeola of the 2014 event was down -0.73 after one year. All others had a positive recovery after six months and one year respectively. Do not panic. Consult your advisor to see if your on track.
We cannot be dispassionate about the Coronavirus. It is serious and needs to be addressed accordingly. I believe the health professionals in our country are the best in the world. Follow the guidelines they are giving us. Watch the daily updates, practice good hygiene and all the other instructions and remember this too shall pass. Until we talk again, be calm and be well.
Registered Representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker-dealer and investment advisor. Member FINRA/SIPC. Dedicated Financial & Insurance Services and IFG are unaffiliated entities.