The Coronavirus & its Impact on Financial Markets
March 12, 2020
We want to take a moment to update you on our thoughts related to the coronavirus and its impact on the financial markets and on your personal financial situation.
Today, the coronavirus triggered a steep stock market selloff around the world. As of this writing, major market indexes in the U.S., Europe, Japan and Australia are down 20% or more from recent all-time highs, according to The Wall Street Journal. The good news is, as stewards of your financial well-being, we prepare for situations like this even though we never know what may trigger them.
Here are three keys we’d like you to keep in mind as we work through the unfolding virus situation and its impact on you and your financial situation.
First, we are closely following the situation and putting you in position to take advantage of opportunities. We have been studying the data, consulting with leading industry experts and evaluating your portfolio – all with an eye toward putting you in position to weather the storm and take advantage of the likely recovery. Using history as a guide, we believe situations like this create opportunities for you and your portfolio. Accordingly, today we made a few changes to your portfolio. We have reduced exposure to international equity and US mid cap equity. We believe these two areas will not fare as well as other asset classes both during this period and upon recovery. Additionally, as prices drop, we are awaiting the opportunity to “rebalance” your portfolio and shift your asset allocation to one that allows you to take advantage of the rebound.
Second, be prepared emotionally for more volatility. Our research suggests that we have likely not seen the end of the fear surrounding the virus and the resultant potential economic impact. Moreover, in today’s financial markets, many trades are triggered automatically by algorithmically driven computers. Once certain “technical levels” are reached, these computers, often run by large hedge funds, start selling (or buying) indiscriminately. And many of them are programmed to “trigger” based on the same technical levels. This “piling on” can lead to very eye-popping volatility—both on the downside and upside.
And keep in mind that in the short term, market movements can be heavily influenced by fear and computerized trading, while in the long term, they tend to reflect broader-based economic trends. As investors, the challenge is to not let the difficulties of the short term prevent us from reaping the potential benefits of sound, long-term investing.
Third, fear is a natural reaction. We’re human and as humans, we’re hardwired to react to situations that threaten us. In this situation, we have a double whammy of fear. There’s the virus that can cause us bodily harm and the market reaction that can cause us financial loss.
Related to the virus, nobody knows how bad the situation will get. All we can do is take appropriate precautions and trust that researchers will find a way to eradicate it sooner rather than later.
By contrast, your reaction to the financial markets is something within your control. We know it’s no fun seeing your portfolio drop. But we also know market volatility is normal and expected. The key is to zoom out and look at the long-term big picture. Your investments are designed to support your long-term objectives, not just today’s needs.
In situations like this, it’s our job as your advisors to bring perspective to help you see that swift market drops are not unusual. And yes, the headlines are scary, and they can bring our “fear” instincts to the surface. But we believe the best response is for you to acknowledge what you’re feeling, reach out to us if that would be helpful, and have confidence that we are on top of the situation.
Here To Help
Your financial well-being is our number one objective. We continue to work hard behind the scenes to monitor this unfolding situation and recommend actions as appropriate. If you have any questions about your specific situation, please contact us. We are here to help. Thank you for your continued trust and confidence.