The impact of the novel coronavirus (COVID-19), like some previous pandemics, has led to stock market volatility. It can be a stressful time. Take care of your health and follow the advice of public health authorities.
As part of your financial preparedness, you may be thinking about what you should and shouldn’t do, and how a pandemic could impact your investments.
While each market downturn is unique and it is difficult to predict the future, there is evidence to support being optimistic when thinking about the long-term. Markets have historically recovered from downturns and continued to grow.
If you’re constantly checking your portfolio, you may easily forget about your long-term investment goals and irrationally react to every bit of new information. Rash decisions could make a difficult situation even worse.
Short-term volatility is expected
There have been six global outbreaks of major infectious diseases since the SARS epidemic of 2003. Between SARS and the outbreak of COVID-19, the world also contended with Swine Flu, MERS Coronavirus, Ebola and Zika. Each outbreak created short-term stock market volatility.
Four tactics to ride out the turmoil
While market volatility may be unsettling during a pandemic, there are ways you can stay on track with your investment plan.
1. Avoid continuously checking your portfolio
You should regularly check your investments, but checking on them too often can create unnecessary stress and anxiety. If you are investing for the long-term, you should expect short-term volatility, especially during times of uncertainty.
2. Avoid trying to time the market
You may have heard the phrase “time in the market is better than timing the market.” Even for experienced investors, it is difficult to know when to buy at the lowest price and when to sell at the highest price. You may sell your investments only for the markets to recover soon after. For long-term investors, holding on to your investments, even during downturns, has generally been an effective strategy assuming that your financial goals and situation remains unchanged.
3. Avoid fear-based decisions
A pandemic can lead to hasty decisions, such as panic selling or buying stocks on an impulse. It could also make you more vulnerable to fraud. Fraudsters exploit fear with fake investment scams, such as schemes to quickly recover financial losses or next “hot stock” based on false rumours, such as a virus cure.
4. Review your financial goals
During a pandemic, there may be unexpected events that impact your finances. For example, if you become unemployed, you might need to cash out some of your investments for short-term expenses. Review your financial goals to make sure your investments align with them.
Throughout history, stocks have generated long-term gains despite many short-term declines caused by global events. If you’re a long-term investor, weathering a pandemic requires patience and thoughtful planning.