We would like to update you on our thoughts related to the coronavirus and its impact on the financial markets, and, ultimately, on your investments and personal financial situation.
Going into 2020, many stock markets around the world were trading near all-time highs and your investments were doing very well.
Of course, markets don’t go up forever. Sometimes, they just stay flat for a while and sometimes, they see violent drops that make big headlines and frighten investors.
In the last few weeks, the apparent effects of the coronavirus saw markets fall all over the world. The good news is, that our client portfolios have not suffered too significantly and as stewards of your financial well-being, we prepare for situations like this even though we never know what may trigger them.
To put this in perspective, as at close of play yesterday, our average Balanced portfolio had fallen by around 11% in the last 30 days but still only by 5% over the last 12 months. In comparison, the FTSE is down by 25%. In a typical Balanced portfolio we expect to see volatility between +20% and -20% so the current position is not outside the normal tolerance.
Fear is a natural reaction. As humans, we are hardwired to react to situations that threaten us. In this situation, we have a double whammy of fear. There’s the virus that can cause us bodily harm and the market reaction that can cause us financial loss.
Related to the virus, nobody knows how bad the situation will get. All we can do is take appropriate precautions and trust that researchers will find a way to eradicate it sooner rather than later.
By contrast, your reaction to the financial markets is something within your control. We know it’s no fun seeing your portfolio bouncing up and down. But we also know market volatility is normal and expected. The key is to zoom out and look at the long-term big picture.
Your investments are designed to support your long-term objectives, not today’s needs. And just like in farming, where we know there will be some lean years when Mother Nature doesn’t cooperate and other years when there’s a bumper crop, the financial markets are similar. Financial markets react to shocks to the system and we are seeing one now.
In situations like this, our job is to bring perspective, to help you see that swift market drops are not unusual. And yes, the headlines are scary and they can bring our “fear” instincts to the surface. We believe the best response is to acknowledge what you’re feeling, call us if that would be helpful, and have confidence that we are on top of the situation.
As investors, the challenge is to not let the difficulties of the short term prevent us from reaping the potential benefits of sound, long-term investing. These documents (click links below) from Fidelity make interesting reading about why it is important not to panic and to take the long view.
Putting time on your side
When doing nothing is best
Here to Help
Your financial well-being is our number one objective so if you are worried or have any questions about your specific situation, please contact us. We are here to help.