What the coronoavirus means for investors
News that the coronavirus is spreading has caused short-term market volatility and it is likely to continue. Although we anticipate that the coronavirus will remain a concern in the coming months, the full and lasting impact on the global economies remains unclear at this point.
Economic impact of the coronavirus
In a highly synchronized global economy, the ripple effects of the tribulation in China have already been felt in markets across the globe. It is unclear at the moment if these effects will persist or if they will fade after a short stint. Although the Fed is watching closely, there have been no definite indications of economic action to be taken on their part at the present time.
There are several stopgap measures that can be put into place should the coronavirus take a negative toll on the global economy. China did recover fairly quickly from the 2003 SARS outbreak. If it were to not fare as well in the situation at present, China could take stimulatory actions such as lowering interest rates or cutting taxes. At this point it is conceivable that any negative effects from the virus would be limited and would likely normalize within a reasonable timeframe afterwards.
The United States remains in a favorable economic position, with factors such as inflation, interest rates, geopolitics, and consumer spending remaining positive.
What does the coronavirus mean for investors?
We encourage investors to stay the course for now. At the present time it is not suitable to make drastic changes to a portfolio as the long term impact of the coronavirus is still unclear.
Here are what we see as the key takeaways for anyone who has money at work in the markets.
· As in any time of volatility, it is important to maintain a diversified portfolio consisting of various asset classes as well as domestic and international exposure. Doing so may help shield a portfolio from market fluctuations.
· Market dips present opportunities for investors with idle cash that they wish to put to work. However, investors should make any investments decisions prudently, based upon solid research, in accordance with risk tolerance guidelines, and in line with short and long term objectives.
· Decisions should never be made in response to headlines. Investing should be done with emotions held in check. As the old adage goes, cooler heads prevail.
The ideas presented in this article are general guidance only and can never be interpreted as advice specific to any one individual. For questions on your specific situation, please contact us to discuss.
Sources
Evaluating the Economic Consequences of Avian Influenza. Retrieved from http://documents.worldbank.org/curated/en/977141468158986545/pdf/474170WP0Evalu101PUBLIC10Box334133B.pdf
Kushlis, Chrisopher J. (February 2020). Coronavirus: Markets Likely to Remain On Edge in the Near Term. T. Rowe Price. Retrieved from https://www.troweprice.com/financial-intermediary/us/en/insights/articles/2020/q1/coronavirus-markets-remain-on-edge.html
Sen, Conor. (12 February, 2020). Bloomberg. Coronavirus sets up short term economic pain, long term gain. Retrieved from https://www.bloomberg.com/opinion/articles/2020-02-12/coronavirus-sets-up-short-term-economic-pain-long-term-gain
World Economic Forum. (20 February, 2020). Everything you need to know about the coronavirus. Retrieved from https://www.weforum.org/agenda/2020/02/everything-you-need-to-know-about-the-coronavirus/
Contributor
Ellen Li, CFP® is a lead advisor with Financial Alternatives in La Jolla, CA. When she’s not rock climbing at the gym, she’s focused on helping clients with tough financial planning questions uncovered as part of the EXPERT™ Advisory Process. Set up a time to chat about your situation or her latest climbing destination.