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How Might the Coronavirus Pandemic Affect Your Investments?

How Might the Coronavirus Pandemic Affect Your Investments?

March 23, 2020
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Fears over the new coronavirus (Covid-19) outbreak dominate the early 2020 news cycles. And while the primary cause for concern is the impact on human health and life, many investors are also anxious about how this will impact their finances. Are you among them?

 

If so, here are a few key things to remember when facing the potential for a pandemic.

 

Markets Get Jittery

 

For better or worse, stock markets react very quickly to both good news and bad news. In the early days of an outbreak (and possible pandemic), news is chaotic and often hyperbolic. Markets often drop when things sound dire, and they drop well before the actual situation on the ground might warrant a lower valuation. Conversely, markets will also overreact to any sign of good news.

 

When you understand how markets — especially overvalued markets — often react to the news cycle, you will be less spooked by drops. You also reduce your chances of being caught up in any euphoric buying sessions that could be reversed just as quickly.

 

Categories Are Affected Differently

 

As with any natural disaster, different segments of the market will be affected in different ways. Some of these can be predicted and some can’t.

 

With Covid-19 starting in China, business and travel there has been seriously restricted and Chinese companies are already affected negatively. New travel alerts for countries like Iran, Japan, and South Korea will likely cause problems for their businesses. In addition, international stocks related to travel — such as airlines, hotels, cruises, and even the 2020 Olympics — will suffer inevitable losses.

 

On the other hand, stocks related to the health and medical field or infrastructure often see a boost in value due to increased demand. If you have the ability to get in on this early, you could make some money from the important efforts to combat and eliminate a pandemic. Rather than trying to time the market alone, work with your advisor to identify buying opportunities.

 

Diversification is Vital

 

Is your portfolio property diversified? If you haven’t checked on this recently, this is a good time to do so. Since you can expect market fluctuations in various sectors and almost certain losses in particular areas, the best response is to avoid putting all your eggs in one basket, so to speak. Your portfolio will then absorb the losses better and benefit from gains in other markets.

 

A good pandemic diversification plan should include your domestic versus international exposure, small versus large corporation exposure, and the ratio of cash equivalents to long-term investments.

 

Impact Is Usually Short Term

 

While younger investors might feel like the Covid-19 outbreak is a unique situation, experienced investors know that this is not the case. In the last 50 years, in fact, there have been 13 epidemics that affected the globe. Each is worrisome in its own right, but take heart that the stock market continues its upward trend regardless. Fluctuations from outbreaks and containment are soon swallowed up by the trend.

 

Your Advisor Is an Asset

 

If you have fears over a potential pandemic, start by meeting with your financial advisor as soon as possible. Many of the steps that you should take — such as diversifying your portfolio or buying stocks in sectors that could gain — must be taken before the conditions appear to warrant them. And your advisor can help assuage your concerns by calling on their years of experience with the financial implications of disasters.

 

Want to know more about preparing for and weathering the coronavirus outbreak within your investment plan? Make an appointment today with Presidio Wealth Management. Our knowledgeable team can help you prepare for whatever the future holds.