Equity markets were down late last week and early this week on reports that more people have been affected by the coronavirus (2019-nCoV). There is still much unknown about the virus, making investors nervous that a world-wide epidemic could occur. Infectious diseases tend to make financial markets uneasy which send share prices lower. If history repeats itself, this threat is probably only temporary. To put things into perspective, more than 100 people have died so far from the 2019-nCoV compared to as many as 646,000 estimated deaths globally each year from the seasonal flu.
There are five keys points to keep in mind regarding the coronavirus and the impact it may have on your investment portfolio:
- Equity markets are up substantially over the past 12 months leaving a cushion to absorb the threat of an unpredictable shock such as the spread of the 2019-nCoV.
- The SARS (Severe Acute Repertory Syndrome) outbreak in 2002 was also caused by a coronavirus. Although it led to some short-term turbulence in markets, it had no long-lasting impact. Same with the bird flu outbreak (2003) or the swine flu outbreak (2009).
- Trust Point’s exposure to Chinese equities (markets that have been most negatively impacted by the coronavirus) is only about 2% of the equity portion of our modeled portfolios.
- Declines in markets are an unavoidable aspect of investing. Declines are healthy as they allow value to be restored which can attract new buyers.
- While equities have sold off, other portions of the portfolios (high quality bonds) have gone up, illustrating the benefits of diversification.
Our response which aligns with our philosophy of investing remains the same; unless your unique personal situation has changed, tune out the noise and stick with your long-term plan. Volatility and short-term market corrections have never prevented anyone from achieving their long-term goals.
We understand these times can be mentally challenging to investors. However, our 106 years of experience tells us that the certainty of outcome increases as the time horizon lengthens and more often than not, in times of stress, the best action is no action at all.
What matters the most over the long-term is not market timing but time invested in the markets.