Investment Focus | Issue 5 | Coronavirus
Investment Update – Coronavirus
The steep selloff that started Monday has continued and it looks like we will have 5 straight days of significant market declines, the worst since the 2008 financial crisis. The questions everyone is asking are: will this continue, and if it does, what should we do?
The answer to the first question is easy. No one knows. No one can know. There’s a real chance that the market will go down further though.
The second question is a little easier to answer. What we shouldn’t do is react to our emotions and make errors that end up costing us money in the long term.
As shown in the chart below, there have been health epidemics in the past and all of them caused market turbulence. But the most important thing to look at is the upward trend in the market. Yes U.S. stock indices are down almost 10% over the past week, but they gained 181% in the past 10 years. Also, this isn’t the first shock or drawdown we’ve seen in the long bull market since 2008 either. As mentioned in our last post, there have been numerous shocks to the market in the past 10 years that happened during that 181% rise.
Source: Citi Research, FacSet Jan 27, 2020
The bottom line is no one will benefit from selling their investments in a panic (see the graphic below).
It may be scary while you are in the middle of it, but history demonstrates (again and again) that global disease outbreaks have very little effect on the market in the medium to long term. The Coronavirus doesn’t impact our view of what the markets are going to do in the next five, 10, or 20 years down the road.
Our advice is to try to drown out the noise and avoid the investment section of the newspaper. As the old adage says, “This too shall pass.”
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