The coronavirus is dominating the headlines. And it is causing incredible anxiety within the ‘general populations’. Certainly investors are watching and reacting to the fear and anxiety. The virus is ‘unknown’ and that’s what makes it scary. Thing is, the short-term direction of stock markets is unknown as well. We just know that historically over longer periods they go up, tremendously. Don’t be scared, keep investing.
I like the expression – look at the horizon not your feet. If we look down at our feet while we walk we are likely to get tripped up. Lift your head up.
Maybe stop watching the news if it scares you. Don’t look at your portfolio if that scares you. I don’t like vampires. They scare me. I do not seek out vampire movies. Nor do I go vampire hunting, or ghost hunting. But I have no problem looking at my portfolio.
On February 1 I posted on the coronavirus outbreak before most were really taking notice. The stock market makers began to ignore the outbreak, as they should. But that changed.
Now obviously nothing is more important than the human tragedy. The post was an offering for investors to evaluate their risk tolerance level. I often write that these scary events come along with regularity. They are courteous warning shots. They offer the opportunity to gauge how we feel about falling portfolio values and incredible noise.
We have no idea how this will play out.
From my previous post, the past global health scares were eventually ignored by stock markets.
There’s only one event of true market declines from the above list. Markets mostly go up. They even go up through and past health scares, political scares, economic scares. You name it.
But let’s not have our collective heads in the sand.
The markets could continue to correct, big time, or not.
Here’s the 5-day chart for XIU, the TSX 60 ETF from iShares.
This could all blow over as we move on to the next big news story. Remember the US bombing in Iraq? They took out a military leader. It was more than big news. That human story is still playing out. We’ve moved on.
There is no doubt that the coronavirus (covid-19) is real, and a real tragedy for many. But as has been suggested, it is currently much less of a threat compared to the flu.
Are we over-reacting because of the news coverage? The news decides what we are afraid of. In the end this sneaky virus will decide the impact on our lives, our economies and our portfolios. Once we understand the virus, that fear may go away. The story will likely disappear as well. Let’s hope that the coronavirus is quickly understood and contained as best as possible.
Lower prices are good.
Don’t be scared. Keep investing. If you’re in the accumulation stage, you should welcome the opportunity to buy your companies as they go on sale. And again, they go on sale for many reasons. They usually go on sale with more regularity than we’ve seen in the last 10 years. If you’re investing on a regular schedule (that’s the plan, right?) you’re buying more shares or units.
Those sale prices can be good for the long term prospects of your portfolio.
Do you want to buy the TSX 60 XIU at $27, or would you rather buy at $15? If stock markets continue their long term trends you want to buy low. That goes for your Canadian, US and International stocks.
Here’s US stocks 1, Canadian stocks 2, International stocks 3, from January of 2009 to end of January 2020. That’s soon after a real stock market correction of course. Based on a hypothetical $10,000 starting value for each.
And here’s the returns before the correction, from January of 2008.
Lower prices are good. Yes thanks again Captain Obvious but these simple truths need to be repeated from time to time. And in fact market corrections are normal, healthy, and expected. They can reset the markets to allow you to buy greater current earnings. They allow you to own a greater percentage of those companies and profit centres.
Let’s step back.
For the US markets we’ll call on the Dow Jones and macro trends for the chart. Can you spot coronavirus in there? How about the 2018 Christmas stock market rally killer?
The horizon offers perspective.
Investing within your risk tolerance level?
You should have already been prepared for the next stock market earth quake or tremor. You don’t know its name or origin. That doesn’t matter. You are prepared for most everything. So you keep on keepin’ on .
I also think that we should be careful with that reading of our risk tolerance level. After 10 years with no real test, our perception of our risk tolerance level may have drifted out of whack. Be honest with yourself.
If you’re confident that you’re investing within your risk tolerance level, well, then you may have skipped past this post. You stick to your simple plan. You add your monies on a regular schedule.
I heard from a reader yesterday who was making his RRSP contribution. He recently set up an ETF portfolio. He started at 60/40. The portfolio is now 65% stocks and 35% bonds. He moved new monies to the US bonds to re-balance on the fly; keep his risk level in check.
Not need to think or sweat. Don’t be scared. Keep investing.
If you’re retired, ensure you are managing the stock market risks. We need to manage that sequence of returns risk. In my first post on coronavirus and portfolio risk I had suggested investors look at Gold and US Treasuries. They have responded as ‘expected’. You may use an assortment of tools from bonds and gold to cash and real estate income, pensions and annuities and more.
If ever in doubt you may seek the help of an advice-only planner with ‘retirement chops’. It usually takes a retirement specialist to know the optimal arrangement and order of asset harvesting.
Thanks for reading. Don’t forget to follow Cut The Crap Investing.
Don’t be scared. Keep investing.
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