Should you be concerned about the “Coronavirus Crash”?
When the COVID-19 outbreak originally broke in December, the markets did not seem to be too concerned. As news of the virus spreads, worry has grown and stocks have declined. Since its all-time record earlier this month, the S&P 500 index has now dropped 12% (as of yesterday’s close). It’s fair to ask the question some clients have raised, “What should I do about a potential ‘coronavirus crash’?”
Short-term stock market reactions are not surprising. As one economist noted this week, the SARS virus was connected to a market drop of almost 13% back in 2003. There may be real reasons that a coronavirus (or at least countries’ reactions to it) will temporarily slow down economic growth. But as Warren Buffett pointed out a few days ago, there hasn’t been any news dramatically changing the 10 or 20-year outlook for investors.
For context, we’re now trading at levels we haven’t seen since… early December 2019. Backtracking two months isn’t ideal. However, based on headlines, you’d expect we’ve lost years of growth! It’s certainly possible the decline will continue and even trigger a broader sell-off. But as we wrote just a few months ago, market fluctuations (ups and downs) are a normal part of investing. Instead of causing anxiety, they can present an opportunity for those who are patient and prudent.
Investors should think long-term. Study after study demonstrates that short-term decision-making leads to poorer investment returns. Rather than freaking out about a single incident or loss, a solid financial plan is built anticipating these fluctuations. Though impossible to predict or prevent, they can be prepared for.
If you’re worried today, we have two recommendations. First, read our post from last summer about economic downturns. It lists three practical steps for your finances to minimize financial stress. Second, consider turning off the news. It’s okay to be informed about world events, but if it’s making you fearful & panicky, it may be time to take a break. You’re more likely to have negative health effects related to stress than you are in contracting a coronavirus.
As always, call us if you have questions or want to talk through your personal situation. We’re here to help – even if it’s to buy into market drops as the opportunity presents itself!
Here for you,
Your principled team at Sound Stewardship