Recent outbreaks of the coronavirus (a.k.a., COVID-19) outside of China have raised concerns about its containment. These increased concerns have sent stocks quickly lower over the last few trading days as you've probably seen if you've been on the internet (it's pretty impossible to miss at this point).
While we don’t know how many people the virus will infect, the length of this viral cycle and what influence it will ultimately have on the economy, we do know that you probably have some questions about how it could affect your investments.
With that, I want to share three investment-related themes to keep in mind
First, don’t give in to the urge to take action; I know it can be hard. The news stories about the virus can be downright scary, but remember that market prices react immediately to both good and bad information...and, it's not always right.
To potentially make money or avoid potential losses, we would need to trade before it hits the news. And as you've heard me say many times, my crystal ball broke many years ago. So, any action that we would be taking would be an absolute guess.
Second, we need to keep perspective. This isn’t the first new virus we’ve seen, and it certainly won’t be the last. SARS, Zika, H1N1 and others have all come and gone.
While the concerns at the time were the same (e.g., How quickly will it spread? Will there be a cure? Will it slow down the global economy? How will it impact my investments?), we figured out how to overcome past viruses, and markets have done the same. Again, I know it's easier said than done.
In fact, when looking back, markets actually have pretty short memories regarding epidemics. They initially react to the uncertainty and fear that comes with any new concern, but, for the most part, viruses get contained and investors return to corporate and economic fundamentals. We can see this in the table below.
Market returns generally have been up in the six- and 12-month periods following the outbreak of a virus or disease. While this is a rather small sample set, we know that keeping focused on the long-term helps us keep a level head during all kinds of storms; even though I know it can be tough sometimes.
The third and final idea we want to share is to be on the lookout. Believe it or not but the Securities and Exchange Commission has issued a public warning that fraudsters are attempting to play into our natural emotions of fear and greed during this period of uncertainty (what's wrong with people?).
There have been reports of social media posts and online ads promising a huge profit by investing in companies that have supposedly found a cure for the coronavirus. We’re sure we sound like a broken record on this topic, but there are no sure things or get-rich-quick strategies when it comes to investing.
If it sounds too good to be true, it is.
Before I wrap up, let me mention a couple of observations about the virus. First, one statistic that we haven’t heard much about in the press is the number of people that have recovered from it. According to information tracked by John Hopkins University, over 30,300 people have fully recovered from the virus.
While it does have a slightly higher mortality rate than some of the more recent viruses, catching it doesn’t mean you will pass away. Inf fact, the odds are quite high that your immune system will fight it off.
Further, while the number of infected people outside of China has grown, the overall number of people that are contracting it appears to be on the decline. This suggests that containment measures and safety precautions may be working to limit the spread
However, I would suspect we hear more about it in the United States in the next coming days. It's simply inevitable at this point.
My advice remains the same, stick to your long-term plan and tune out the noise. We invest in a way that isn’t dependent on lucky guesses or get-rich-quick schemes. We use investment strategies and prepare financial plans that assume events like these will come and go as they always do.
So, please, stay positive and focus on your family and your health. If you want to think about the virus, send positive thoughts toward those infected by it.
If you have any questions about your investments, need to inform us of family or work-related changes, or want to discuss your financial planning needs, please reach out. We are here to help you reach your financial life goals...regardless of what's happening in the world.