Addressing the coronavirus and market volatility

March 5, 2020   |   COVID-19

Note: this post has been adapted from an email sent to a portion of our clients in early March 2020. Please review the disclaimers at the bottom of this post carefully.

We know that recent news about current market volatility and spreading coronavirus may be currently adding a bit of stress to your life. We’d like to give you a quick update on where things stand (as of writing this post on March 4, 2020) and provide three keys to help navigate the situation appropriately:

  1. Fear is a natural reaction. Acknowledge it, but don’t let it drive you to make a costly decision.
  2. If you’re a current client, trust your LifePlan and have confidence that we’re following the situation closely and will make adjustments as warranted.
  3. Remember LifeGuide’s ninth investing principle: “Base your faith and contentment in something greater than your investment accounts”

First, how did we get here?

Heading into 2020, many stock markets around the world were trading near all-time highs, including major indexes in the US, Canada, UK, and Australia. In fact, since the end of The Great Recession in 2009, many stock markets around the world have seen their prices double or even triple in price.

In the US, 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, COVID-19 (coronavirus) is triggering a steep stock market selloff around the world. As of this writing, major market indexes in the US, Europe, Japan, and Australia are down 10% or more from recent all-time highs, according to The Wall Street Journal. 

With that, let’s dive in. Here are three keys we’d like you to keep in mind as we work through the unfolding virus situation and its potential impact on you and your financial situation.

#1: Fear is a natural reaction. Acknowledge it, but don’t let it drive you to make a costly decision.

As humans, we’re hardwired to react to situations that threaten us. In this situation, we’re being hit with a “double whammy” of fear. There’s the fear of the virus and the bodily harm it could cause us, as well as the fear that the market reaction 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 than later.

By contrast, your reaction to the financial markets is within your control. Although it never feels good watching your portfolio drop, market volatility is normal and expected. In situations like this, the key is to look at the long-term, big picture. Although past performance is not a guarantee of future performance, it is helpful to remember that we have experienced other global disease concerns (as illustrated in the graphic below by Capital Group) in the past.


Global equity markets have powered through past viral outbreaks

We approach investing as a means to support long-term objectives, not just today’s needs. 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 of those shocks now.

It’s also helpful to understand that short-term market movements can be heavily influenced by fear and computerized trading (where natural fluctuations can be over-amplified by automated trading programs often employed by large hedge funds). In the long-term, markets tend to reflect broader-based economic trends.

We approach investing as a means to support long-term objectives, not just today’s needs

Headlines and the 24/7 news cycles can magnify our “fear” instincts (as well as drive TV ratings, internet traffic, and advertising dollars). Yet in situations like this, we believe our job at LifeGuide is to both provide our clients perspective that swift market drops are not unusual, and to help them avoid making costly decisions.

#2: If you’re a current client, trust your LifePlan and have confidence that we are closely following the situation and will make adjustments as warranted.

As advisors, we want our clients to have confidence in their financial LifePlans and investment strategy. While we know that no strategy or technique can prevent losses, we stress test our retirement income plans and employ portfolio bucketing strategies to help address these types of market conditions. For accounts we manage, we continue to employ our dynamic rebalancing strategy in accordance with our second investing principle: “Create and maintain meaningful diversity.”

We check our clients’ accounts at least weekly for allocation drifts outside of the targets we’ve set, buying the asset class that went too low and selling the asset class that went too high to bring the positions back to their targets. Sometimes, market drops like this can create special buying opportunities as stock prices are significantly cheaper than they were previously (Again, this is not to be taken as specific advice. Please read the disclaimers below and contact your advisor for advice based on your financial situation)

In the words of Warren Buffett, we believe there’s wisdom in being “fearful when others are greedy and greedy when others are fearful.”

#3: Base your faith and contentment in something greater than your investment accounts

Our ninth investment principle reads: “Base your faith and contentment in something greater than your investment accounts”

In other words, the more loosely an investor holds on to their wealth and perceived success, the better investor they can be. Basing our faith and contentment in something greater than our investment accounts helps us prepare emotionally for more volatility.

Charlie Munger and Warren Buffett are great examples of this principle. Their ability to place their trust outside of their current portfolio balances (and in something greater) is perhaps one of the greatest contributors to their success.

If you’re a person of faith, we encourage you to lean on that faith to help you navigate times of increased uncertainty.

Market drops remind us how important it is to have a long-term plan.

Perhaps the main takeaway of this post is to recognize your emotions. Don’t follow the emotionally driven herd to make short-term reactions with long-term consequences. If you’re a current LifeGuide client, trust in your plan, your principled investment strategy, and wise (un-sensationalized) advice.

If you don’t have a long-term plan, we would strongly suggest you get one. Please feel free to schedule a call with us to talk through your situation.

Finally, base your faith and contentment on something greater than your current account balances. After all, finances should be a means to an end and not the end alone.

Times of uncertainty and fear remind us of the importance of having a team that you can rely on for perspective and guidance. If you’re a current client, please feel free to reach out to your advisor with any questions or concerns you may have. If you’re not and are interested in talking through your current situation, we’d love to connect with you.

Schedule a call today!

Further reading

We’ve compiled a list of helpful information from a variety of sources we recommend for further reading and perspective. Learn more about our investment principles and approach.

LifeGuide Financial Advisors, LLC (“LifeGuide Financial”) is a registered investment advisor within the U.S. Securities and Exchange Commission. LifeGuide Financial provides investment advisory and related services for clients nationally. LifeGuide Financial will maintain all applicable registration and licenses.

The information provided does not constitute investment advice and it should not be relied on as such. It does not take into account any investor’s particular investment objectives, strategies, tax status, or investment horizon. All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information, and “LifeGuide Financial Advisors, LLC” shall have no liability for decisions based on such information.

View and opinions are subject to change at any time based on market and other conditions. Investing involves risk including the risk of loss of principal. Past performance is not indicative of future results.

Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss, and the reinvestment of dividends and other income. Diversification does not ensure a profit or guarantee against loss.

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