Coronavirus - What Investors Should Do
It has been a wild few weeks in the markets.
What's happening?
The doctors for who I work tell me that COVID-19 is not likely to cause a zombie apocalypse, it isn't the new bubonic plague, and isn't going to wipe out 1/3 of the global population. Whew!
However, it is a serious virus that global health officials are working hard to contain. The World Health Organization has labelled it a pandemic, but it is also turning into a panic.
Just like people are irrationally buying mountains of toilet paper from Costco, people are selling their shares in nearly all businesses at an irrational rate.
When markets go down, it is very tempting to sell—our brains like simple, black-and-white thinking, especially about things that we don't understand well.
Right now, the thinking is virus bad -> hoard toilet paper and sell everything.
But like anything else, there is far more nuance to this. Let's talk about this from the health perspective and the money perspective.
From the health perspective, the best thing we can do to slow the spread of the virus, according to Health Canada, is to limit physical contact, stay home if you're sick, and wash our hands thoroughly with soap and water. They also recommend having enough supplies to last you if you happen to contract the virus and, therefore, need to stay home.
No one is recommending to stock up two years of toilet paper, bathe in hand sanitizer, or live in an underground bunker for the next year. See? Nuance.
From a financial perspective, this is not entirely unprecedented. No two market corrections are precisely the same. But we have seen markets drop over 50% in the past. We have seen how past viral outbreaks have affected investments.
To slow the spread of the virus, people will stay home. That will affect many businesses like travel and the restaurant you usually go to for lunch at work.
But there will be companies who benefit from this, like toilet paper companies and the restaurant you usually go to for lunch at home.
In total, this will likely cause total demand, and therefore earnings go down while people are practicing social distancing. How much will be affected, and when will the rebound occur? The truth is, no one can reliably predict these things.
To be a successful investor, you do not need to predict what is going to happen to the economy and stock prices. Even if you invest at all the wrong times, you will still have a great return if you hang on. Stock price drops are part of investing. You need to have a plan for when that happens.
What can you do about it?
If you are years away from retiring here's the strategy:
Have a Financial Plan, so you know how much you should be investing toward your Big Dreams.
Use an evidence-based portfolio to eliminate unnecessary risks and costs.
Invest when you get paid. Don't hoard cash with the intent to buy during crashes like this. No one knows where the bottom of any crash lies. And even if you did, the benefit isn't as significant as you would think.
DON'T SELL. If you do, how will you know when to get back in? The rebound will likely happen well before all the facts about the virus and corporate earnings are known.
If you are retired or are retiring soon, here's the strategy:
Have a Financial Plan, so you know you can afford the lifestyle you want throughout your retirement.
Use an evidence-based portfolio to eliminate unnecessary risks and costs.
Have a Cash Wedge in your portfolio to draw from during market declines. That way, you don't need to sell something while it is down.
Have a portfolio that aligns with your risk tolerance and risk requirement. There is a reason we have lower returning, income bearing investments when you are close to your financial goals.
A good financial plan will have market corrections built into it. See? Nuance. If you're a client of mine and want to talk about your Financial Plan or learn how we are implementing these strategies, please hit 'reply' and let me know.
If you are not a client and want to learn how a Financial Plan and these strategies might help you, please book an Initial Dream Board call right here.
Please stay safe, follow the recommendations of Health Canada, and do not hesitate to reach out to me if you need some help. Together, we can pull through this and come out stronger.