We want to take a moment to update you on our thoughts related to the coronavirus and its impact on the financial markets, and, ultimately, on your personal financial situation.
Going into this New Year, many stock markets around the world were trading near all-time highs including major indexes in the U.S., Canada, U.K. and Australia. In fact, since the end of The Great Recession in 2009, many stock markets around the world have seen a doubling or tripling in price. In the U.S., for example, the S&P 500 index, a broad measure of the stock market, saw its price increase from under 700 in March 2009 to over 3,300 this month, according to data from Yahoo! Finance.
Of course, markets don’t go up forever. Sometimes, they just flatline for a while as company earnings catch up with stock price valuations. Other times, they see violent drops that make big headlines, like the “Black Monday” stock market crash on October 19, 1987 that was felt around the world.
Today, the coronavirus is triggering a steep stock market selloff around the world. As of this writing, major market indexes in the U.S., Europe, Japan and Australia are down 10% or more from recent all-time highs, according to The Wall Street Journal.
Top investor Warren Buffett famously wrote, “It's only when the tide goes out that you learn who's been swimming naked.” Well, the tide is going out. The good news is, as stewards of your financial well-being, we prepare for situations like this even though we never know what may trigger them.
Three Keys
Here are three keys we’d like you to keep in mind as we work through the unfolding virus situation and its impact on you and your financial situation.
First, fear is a natural reaction. We’re human and as humans, we’re 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 drop. But we also know market volatility is normal and expected. The key is to zoom out and look at the long-term big picture.