What Should You Do About the Coronavirus and Stock Market Volatility?

Coronavirus and stock market volatility

The financial markets took a big dip early this week over fears about the spreading coronavirus, erasing gains from earlier this year. After the Dow lost over 800 points on Tuesday, it was down a total of 1,900 points in two days.

Investors are understandably nervous about their money and their health. If you are worried about your portfolio, you’re not alone. But during stock market volatility, it’s important to keep a level head to avoid financial mistakes.

Stay Calm

At times like these, it’s important to put current conditions into perspective. This is not the first time the market has taken a tumble and it won’t be the last. Declines in the Dow Jones Industrial Average are actually fairly regular events. In fact, drops of 10% or more happen about once a year on average.

Keep an Eye on the Situation

We simply do not have enough information yet to know how the coronavirus will impact the economy in the short and long term. It’s possible that the virus will soon be well-contained, and the markets will recover. But it is also possible that the virus will spread and impact global markets, which would lead to a full correction or even a longer-term recession.

It’s important to remember that markets dislike uncertainty. With so much uncertainty over how fast the virus could spread and the potential impacts, volatility right now is extreme. As we get more information, it is likely that day-to-day market fluctuations will decrease.

Play Dead

There’s an old saying that the best thing to do when you meet a bear market is the same as if you were to meet a bear in the woods: play dead. While easier said than done, successful long-term investors know that it’s important to stay calm during a market correction. We don’t know yet whether the coronavirus fears will translate into an official correction, but the risk always exists.

Market volatility has increased in recent years and the media can often make it seem like each episode is worse than the one before. In reality, volatility does not hurt investors, but selling when the market is down will lock in losses.

Remember That Your Portfolio is Diversified

We understand that volatility and market declines are stressful. However, we encourage you to keep in mind that while the stock market may be down significantly, your portfolio is made up of both stocks, bonds, and other assets that are designed to work together to decrease overall losses. It’s important to consider your specific portfolio, investment horizon, and circumstances when reflecting on economic events. If you have questions about your portfolio, get in touch with our office.

Review Your 401(k) and Other Accounts

Now is a good time to take a look at all of your investment accounts, including your 401(k) to make sure it is well-diversified. If you have not reviewed the investment accounts that we do not manage, get in touch with our office and we’ll take a look and offer recommendations to minimize potential losses.

Speak with Your Advisor

Whether you’re new to investing or an experienced investor, it’s helpful to consult with an objective third party. Human nature causes us all to act out of emotion when our accounts go down. As an independent firm, we put your best interests first. We seek to serve as a support system for our clients, helping them make informed financial decisions that aren’t driven solely by emotion.

We’re Here for Your Friends and Family

If you have friends or family who need help with their investments, we are happy to offer a complimentary portfolio review and recommendations. We can discuss what is appropriate for their immediate needs and long-term objectives. Sometimes, simply speaking with a financial advisor may help investors feel more confident and less concerned with the day-to-day market activity.

Disclosures

The views expressed represent the opinions of Benchmark Wealth Management, LLC (“Benchmark”) and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person.Additional information, including management fees and expenses, is provided on Benchmark’s Form ADV Part 2, which is available at https://adviserinfo.sec.gov/firm/summary/160192.

What to Do During Market Volatility

Man pondering what to do while looking at chart of stock market volatility

By Thomas Britt

Remember the good old days of 2017 when market volatility was historically low and you weren’t all that worried about your investments? With all the volatility we’ve experienced since then, the peaceful days of 2017 probably seem like a lifetime ago. If you’ve found yourself gritting your teeth or wringing your hands, it’s not without cause.

Between regular market ups and downs and global and political events like the upcoming election and the quickly spreading coronavirus, volatility has become the norm. But rather than fear ups and downs, do what you can to prepare for them. Here are a few things to keep in mind that will help you prepare for the next market downturn, whenever it comes.

Control Your Emotions

First, let’s talk about what you shouldn’t do. One of the most important rules in investing is to refrain from making emotional decisions. Multiple studies have analyzed how our emotions affect our investing results, especially when we chase above-average returns. A 2018 DALBAR study revealed that investors’ decisions were the biggest reason for underperformance. (1) Simply put, behavioral biases lead to poor investment decision-making.

You also don’t want to start making major changes to your account in anticipation of a downturn. Erring too much on the side of caution too many years ahead of retirement may prevent you from gaining the potential returns you need to retire on your terms. For example, in a panic, some investors may sell stocks and pursue safer investments like annuities, bonds, and cash.

Instead, relying on an experienced professional to help you understand your options and control the risk you take with your retirement money will allow you to react unemotionally to a rising and falling stock market—instead of guessing what to do next.

Diversify Your Investments

In the 1990s, investors placed their money heavily into the early e-commerce sites, and when that bubble burst, it birthed what is now famously known as The Dotcom Crash. (2) When people were losing faith in the stock market, they looked at real estate as well as their own homes as the place to focus their sights (and money) on. However, the constant speculation and unsustainable rise in home values eventually led to the Housing Market Crash of 2008, (3) and eventually bled into the Great Recession. If history teaches us anything, you never want to put all of your eggs in one basket as it’s never a guarantee that the basket will never fall.

Instead, diversify your portfolio with a combination of different investment sources. Modify your portfolio to include stocks of varying risk levels (safe, moderate, and high risk), and spread your money out between stocks, bonds, funds, and investments in different sectors. This way, you can minimize the impact that any one losing investment can have on your overall portfolio performance.

Diversify Your Income

Economic downturns often go hand in hand with job instability. So, in addition to diversifying your investments, consider diversifying your income sources as well. Besides your salary, consider where other sources of income can and will be coming from. This might mean investing in rental real estate or other income-producing investments such as higher-yielding stocks and bonds, picking up a side job, starting your own small business, or making money online. The more diversified your income, the safer you’ll be.

Prioritize Your Emergency Fund

This strategy is all about preserving the wealth you’ve accumulated to this point. While cash investments may not provide a lot of growth, having a cash contingency fund with at least 6 months of living expenses will protect you against having to sell investments at low values to free up cash. Examine spending patterns and find ways to tuck away even more into cash or cash equivalents, such as short-term bonds, certificates of deposit, or Treasury bills.

Don’t Go it Alone

The only long-term guarantee in investing is that there will be short-term fluctuations. We’ll experience bear and bull markets in the decades ahead just as we have in the past decades. Rather than fear change, focus on preparing for it.

Are you ready to see all your options for protecting your money and setting it up to succeed in any market environment? At Benchmark Wealth Management, we would love to start that conversation and answer any questions you may have. Please call 860.434.6890 or email me at thomas.britt@bwmllc.net to schedule a consultation.

About Thomas

Thomas J. Britt is managing director of Benchmark Wealth Management, LLC, with 20 years of experience in the financial industry. He specializes in executive financial planning, retirement planning, investing, as well as the management of trusts and endowments. Thomas is a Certified Financial Planner™ (CFP®) professional and holds the Master Planner Advanced StudiesSM (MPAS®), Certified Investment Management Analyst (CIMA®), and Chartered Retirement Planning Counselor (CRPC®) designations. He earned a Bachelor of Science in Finance from the University of New Haven, an MBA in financial technology from Rensselaer Polytechnic Institute, and a Master of Science in Personal Financial Planning from the College for Financial Planning. He is also a proud veteran of the United States Navy Submarine Force. Learn more about Tom by connecting with him on LinkedIn.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2, available upon request or at the SEC’s Investment Advisor Public Disclosure site, www.adviserinfo.sec.gov/firm/160192

Securities offered through Private Client Services, Member FINRA, SIPC in the following states: AR, CA, CT, FL, KY, MA, ME, MI, MN, MO, NH, NJ, NM, NY, OH, PA, RI, TN, WA. (Securities-related services may not be provided to individuals residing in any state not previously listed.) Advisory services offered through Benchmark Wealth Management, LLC a registered Investment Advisor. Private Client Services is an unaffiliated entity.

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(1) https://www.gurufocus.com/news/666966/the-average-investor-underperforms-what-you-can-do-to-avoid-this

(2) https://www.investopedia.com/features/crashes/crashes8.asp

(3) https://www.investopedia.com/features/crashes/crashes9.asp