Coronavirus Creates A Wild Ride

By Paul Morrone, CFP®, CPA/PFS, MSA

These past couple of days have been a wild ride. Coronavirus fears have rocked markets worldwide, with recent losses erasing several months of gains. It took what was once a strong start to the year and put investors on their heads. Equity markets have appreciated to unprecedented levels over the past 10 years, which means eye-catching headlines and (previously incomprehensible) four-figure drops in the DOW are more commonplace and easily capture the American investor’s attention. The panic-effect can further be exasperated by the ever-shortening news cycle and mass-media driven hysteria which makes it feel like the world is collapsing. It’s not. 

Financial markets are driven by a host of factors, and one key component is current and projected future global output. Each year, there are a myriad of threats that manifest themselves and jeopardize the potential for future growth. They each pose a unique risk to the integrity, safety and stability of forward economic progress, and investors and markets react when news appears. The coronavirus is a prime example of one of these events. With the benefit of hindsight (and 20/20 vision), most have proven to barely be a blip on the radar. The global economy is incredibly resilient, and has overcome significant economic, geopolitical and humanitarian crises time and time again. 

To be fair, we have not yet seen the true impact of the coronavirus and will likely not have a complete understanding of the magnitude of this global health event until the virus is contained. More importantly, life in China, Italy, South Korea and other affected countries must go back to normal before public fear subsides. This could take several calendar quarters to shake out and will likely impact many companies’ earnings for the first few quarters of 2020. This may also result in additional short-term volatility, which again, is quite normal and healthy for financial markets. 

Looking back over the past several years, you can find a litany of examples which have triggered fear in the investing public. Fear is a natural emotion, and reactions to fear are often instinctive rather than logical. Keeping these emotions in check is imperative to achieving positive long-term financial outcomes. Investors who have embraced a disciplined approach to investing view many of these events as opportunities rather than threats and understand that accepting the volatile nature of markets is essential to long-term growth. 

As investors, we enjoy when markets are friendly, but are quickly reminded that the table can turn at any point for any reason. Volatility reinforces the importance of financial planning, which is designed to provide you with a meaningful understanding of how these periods of time affects your individual situation. Remaining cognizant of market risks is a prudent part of investing, and monitoring risk tolerance over time should be an ongoing discussion between you and your planner. However, a more important factor in determining the success of a financial plan is controlling the variables that you can control, such as implementing a prudent asset allocation based upon your long-term needs or managing spending, saving and risk management programs. 

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