With Coronavirus now well and truly taking hold worldwide and the announcement today that the World Health Organisation has classified it as a pandemic, there is a lot of uncertainty in the markets around the potential broader impact on the global economy.
The various quarantine measures and travel restrictions now in place are causing significant disruption to a broad range of industries. It’s no surprise investors are nervous and we have seen a significant market fall as a result. And it’s not just the financial markets, but also the supermarkets experiencing panic buying behaviour of toilet paper, and other essential items.
In response governments around the world, including Australia, US and UK have cut interest rates and announced stimulus packages to assist their economies through what will be a difficult period. This has seen some serious market swings over the last week or so, but overall markets are now down around 20% from their recent highs in February.
So there’s no escaping the bad news.
However, what markets do is one thing, but what you do as an investor is something entirely different…and your actions or inactions will make all the difference to your investments in the long term.
So it’s important to remind yourself of the following key points:
- Periodic sharp falls in share markets are healthy and normal market behaviour. With the long-term trend ultimately remaining up & providing higher returns than other more stable assets.
- If you are drawing a regular income from your investments or super, then it makes sense to reduce the drawn income as much as possible, and allow your investments time to recover.
- Selling shares or switching to a more conservative investment strategy after a major fall just locks in a loss. Attempting to sell and then buy back in is highly likely to leave you worse off because by the time you’ve convinced yourself to buy back in, you’ve missed most of the upswing.
- When shares fall, they are cheaper and offer higher long-term return prospects. So, the pullback in market will provide opportunities for investors, and will aid the recovery once the uncertainty subsides.
- While shares have fallen, dividends from the market haven’t. Companies like to smooth their dividends over time – they never go up as much as earnings in the good times and so rarely fall as much in the bad times.
- Shares and other related assets bottom at the point of maximum bearishness, ie, just when you feel most negative towards them and you are most tempted to sell.
- The best way to navigate the uncertainty is to stick to an appropriate long-term investment strategy, and try to turn down the noise.
The Coronavirus is, undoubtedly, a significant human crisis and it will have an ongoing impact on markets. However, like epidemics and pandemics been and gone, this too will pass. so it’s timely to remember the words of Benjamin Graham ““To be an investor, you must believe in a better tomorrow.”
Our general advice is to stay put in times of severe market volatility and focus on the long term outlook. If you are concerned or would just like to talk things over please give us a call anytime. Remember, Martina and I are here to support you, especially in these uncertain times.