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A note on coronavirus volatility

Market volatility has continued to spike amid the ongoing outbreak of SARS-CoV-2, the official name of the virus causing the COVID-19 coronavirus disease. Much remains unknown, and financial markets have reacted to the uncertainty with the S&P 500 reaching 10% correction territory in one week. The decline should remind investors of key points:

  • Investments are long term. We entered this period of elevated volatility with a plan. Today’s headlines disrupt the markets for a little while, but it is too soon to know the long-term implications. Even the best forecasting models deal with inaccurate and incomplete data. As a result, there is little to suggest an investor’s long-term plan should change in response to recent fears.
  • Balance beats volatility. Properly balanced investors have experienced significantly less volatility than broad measures of stocks. High-quality bonds have risen in the face of the stock sell-off—exactly as expected. Balanced portfolios have declined, though higher bond prices can provide a source for potential withdrawals, giving stocks time to recoup losses.
  • Market timing doesn’t work. Stocks move rapidly in periods of uncertainty, and a partial resolution to a singular concern, such as COVID-19, can quickly shift markets back in the other direction. Attempting to time a further decline would mean participating in much of the current fall while potentially missing out on any quick recovery.

None of this is to say we don’t act but rather that we have structured portfolios that we believe can weather storms such as this in time. If plans change or portfolios slip out of balance, we should adjust accordingly. However, we build balanced portfolios for these exact scenarios, recognizing that in times of uncertainty, investors need both a long-term plan and the courage to stick with it.

Kyle Tetting
Director of research, investment advisor
Landaas & Company

Learn more
Headlines only part of stock market story, by Kyle Tetting
Corrections: A normal part of investing, a Money Talk Video with Marc Amateis
Talking Money: The importance of balance, a Money Talk Video
Latest updates from:
The World Health Organization
The Centers for Disease Control and Prevention
(initially posted February 28, 2020)

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