The Corona Virus is Ok, for Your Portfolio
Outbreaks of epidemics typically affect the value of your portfolio. In the past it has always been in the short-term. The fear of the coronavirus has caused equities to sell off from their recent all-time highs. There is no reason to expect this outbreak to behave any differently. This sell-off is ok.
This is ok because the various equities markets have had an outstanding performance over the past 8-10 weeks. Some would say the advance has been too much too fast and I can’t really disagree with that position. Volatility has been low, and it has been a slow and steady climb up to these all-time highs that we have experienced in many of the different indexes we follow.
This is ok because there have been several outbreaks over the past 15 years that have caused short-term volatility. But once the fears dissipated, so did the selling. Here are a few outbreaks that generated market volatility:
- SARS in 2003
- Bird Flu in 2005
- A new strain of Swine Flu in 2009
- Ebola in 2014
- Zika Virus in 2016
Most importantly, this is ok because any investments you have in equities are a long-term investment. The coronavirus does not impact your emergency fund in a high-yield savings account. The coronavirus does not affect your next paycheck. Your equity investments are designed to fulfill longer-term financial goals and this virus and none of the others mentioned above have had any impact on long-term investments.
If you are in retirement and distributing investments to yourself, the coronavirus is not significantly impacting the portion of your portfolio where the distributions are coming from. These distributions should be from your fixed income and while those markets do trade regularly, they are quite stable and often rise in value when stock prices decline. The stock portion even for retirees is designed to feed your checking account several years down the road, not next week.
Anytime there is an outbreak that is classified as an epidemic, there is reason to pay attention and be aware. But that does not mean that it is time to change your asset allocation or your investment philosophy. There is no reason to think that the coronavirus is any different from any of the other epidemics this world has experienced over the past few decades. These issues draw the attention of outstanding medical teams all over the world and becomes a top priority. The problems are solved after a period and any concerns subside. And your long-term investments will be ok.