It’s never a pleasant sight to see markets behave in an unlikely way, by going down. Over the last decade of positive returns investors have become complacent and have forgotten what investing is really all about: staying invested over the long-term while navigating volatility. The market’s overreaction to the coronavirus and its subsequent global economic contraction have sent computer algorithms and fearful investors into selling stock positions last week. If any lesson has been learned of the 2008 financial crisis is that investors should expect volatility and that markets do recover. But is the virus threat different and should you make any adjustments to your portfolio?
Nobody can predict the future. We can’t escape the potential risks lurking around the corner and its resulting impact on your portfolio. Being strategic with your investments is key while understanding your long-term investment goals and the time horizon for when you’ll need the money back in retirement. Understanding your personal risk tolerance will determine the balance between bonds and stocks, and maybe other asset classes, and should take precedence over a quickly going to cash the moment we see some volatility.
The S&P 500 has returned to the October, 2019 price level, of 3,100. Markets have reversed from an exuberance of gains over the last few months by giving back 11% from its high. As noted in my January Markets Blog the high is the mirrored technical opposite to the December 2018 low and a risk of a correction was noted as likely. Since Monday, it appears that we are now trading in a technical range between 2,870 and 3,100. A break below this threatens the continuation of the long-term bull cycle we’ve been enjoying since 2010.
A wide trading range is normal and expected until more is known about the coronavirus and the potential impact it has on global trade. Markets will continue to digest news as it comes and the related underlying threats.
Governments have already responded with Italy injecting more than $3 billion into their economy to compensate for the quick reduction in tourism, the FED has announced a quarter point cut to stimulus equity markets, and the IMF and World Bank stand ready to extend ‘emergency financing.’
The best thing governments can do now is to provide an honest risk assessment of the threat and worst case scenarios. This will allow for the markets to digest this information and price it accordingly.
Meanwhile investors have no reason to bail on a diversified investment strategy that also includes bonds, which have done incredibly well in this period, showing that the safe-haven asset for the world remains to be the U.S. Treasury. if you're new to investing then consider going in slowly by dollar cost averaging on a monthly basis for the next four to six months. For all other investors, staying the course is recommended and not to react to the gyrations that are expected to continue.
At Eureka Wealth Management, I help clients navigate through volatility by strategizing on a diversified portfolio that’s right for them. I also do retirement planning, insurance, and tax & estate strategies. Call for a free, initial consultation at (760) 537-0791 or online at eurekawealthmanagement.com.