What does the COVID-19 Coronavirus
mean for your investments?
What does the COVID-19 Coronavirus mean for your investments?
In the past number of days, global stock markets have experienced a sharp decline as the coronavirus spreads outside of China. At the time of writing there are over 95,000 confirmed cases and death tolls are rising, which is heartbreaking. The spread of the virus has triggered selling in the markets as people are uncertain about how long it will take to contain and what effect it will have on global supply chains. However, sensible investors and investment managers alike will not speculate about short-term events and will always look at the long-term picture.
After a decade long bull market, this dip has actually not taken experts by surprise as many had envisaged a correction, in leading market indices, to occur this year. Although, it has still caused panic for investors who are unsure what to do with their investments, as volatility ensues. So what should people do when the markets are experiencing volatility?
Don’t buy or sell stocks based on the day’s news headlines
This was Warren Buffet’s advice when talking this week on CNBC about what the coronavirus means for investors. People often make the error of a knee jerk reaction and selling their holdings immediately after a dip, only for the market to then recover and therefore miss out on participating in the upswing.
Stick to your timeframes and financial plans
It is widely accepted by investment experts that when planning for retirement people should take a long-term approach of 10, 20 or 30+ years. Warren Buffet has long been a proponent of long-term index investing, because over periods of 10+ years even the best stock pickers in the world struggle to beat the market. Volatility will always occur periodically in a market but it is very important to stay calm, stick to your long-term plan and not react haphazardly to short-term events. Barring a serious emergency or life event, money in your RRSP and other retirement accounts likely won’t be touched for a long time. Even when you begin to turn your retirement savings into income, you will need that money to provide income for 20 or 30 years. Therefore, it is important to hold your course and stick to your plan.
The global economy always recovers
Hysteria in the media could lead people to believe that everything is in meltdown and as a result lead people to make irrational financial decisions. The simple fact is though that the global economy has always recovered from events such as the coronavirus. World War II, Cuban Missile Crisis, AIDS Epidemic, Ebola, Bird Flu, SARS and 9/11 all caused a dip in the global market and short-term uncertainty. However, after each event the leading global indices recovered and went on to reach historical highs.
The S&P/TSX 60 is an equity index that tracks the top 60 companies on the Toronto Stock Exchange. Even if you bought this index the day before the global financial crisis in 2008, 10 years later you would have fully recovered and even been in a more positive position.
On Retire on Time we always advise people to take a conservative long-term approach when saving for retirement and the coronavirus has not changed our view, but actually strengthened it. Investing in a leading market index diversifies your portfolio across a number of sectors. In fact, after a market correction is the perfect time to invest in an index, as you are still getting the same great investment, just at a cheaper price. If you were planning on buying a new car for $50,000 and the price was cut to $40,000 then it’s all the better for you!