Coronavirus and the Markets
Coronavirus and the Markets
We hope you’re healthy and holding up well with the news regarding the markets and the coronavirus.
Much of the panic in the news and markets comes from the fact that nobody knows how bad the coronavirus will be. Unfortunately, when the markets are nervous, they tend to go down quickly.
More people are now being tested (they were initially limiting tests to certain demographics, so there’s now a larger pool of people getting access to testing), and because it can take several days for symptoms to show.
Countries are taking extreme measures to try to contain the spread. The good news is that the outbreak is slowing in China. That gives some hope that we could start seeing a global slowdown of new cases at some point in April-especially if this virus loses steam in warmer weather.
The governments here and abroad are working to try to create a soft landing for their respective economies. We’re hopeful that we’ll have some additional funding. Funding for healthcare, support for the people who are most at risk for lost income, small business grants, and then some relief for the large businesses that are the most at risk of bankruptcy (such as airlines). We expect any news such as this to help the markets for a day or so. That said, we’re pretty sure that we’ll see further pullbacks from here if we see a spike in cases as suspected.
For our clients, we’re using market pullbacks as buying opportunities. Generally, we prefer to add money as the market goes down to help buy low (or at least lower). We’re also using this as an opportunity to actively reposition portfolios. By buying some new companies that we think have opportunities going forward and buying more of companies that clients already own to get them at a lower price point. Ideally, this strategy could help to somewhat minimize the downturn while providing the opportunity for greater upside as the markets turn around.
We recommend consulting with your Financial Advisor to see what investment strategies work best for you.
Given the way that the markets have performed in past pandemics and significant recessions (yes, we might enter a recession), a decline of over 40% isn’t out of the question. That said, the economy has historically snapped back quickly from pandemics as people started venturing out of their homes. Please see the link below for additional information to support our strategy.
Keep in mind, that even if we drop 30% from the peak, we’re just back to December 2018’s lows. A 40% drop from the peak brings us back to the start of the Trump presidency. Considering that many, though the market might stumble then, we think we’re going to be okay over time.
If you’re investing for the long term, you are likely to see several short-term periods (6, 12, or even 18 months) when the markets go down. To help avoid the need to sell low and lock in losses, we suggest maintaining cash in your investment accounts to help cover any planned distributions over the next couple of years.
Questions and Consultations
If you have questions or if you’d like to schedule an appointment to discuss your finances, contact us today.
The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual. Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation.
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