It’s no exaggeration to say investors are being overwhelmed with market commentary on the coronavirus. To help you sort through the glut, here are 5 financial insights worth remembering, come what may in the days ahead.
- We still can’t predict the future. The current pandemic is a glaring illustration of how unpredictable the future can be. Clearly, nobody saw this one coming. Even once we did, markets initially assumed the impact would be limited. History is littered with similar “Who knew?” surprises.
- A global economy means global uncertainty. Even when all news is known, we still can’t predict how market pricing will play out next. There are too many moving parts complicating the potential outcomes. For example, even had the coronavirus remained strictly within China, it could have caused a global supply chain distribution crisis. We’ll never know.
- The market isn’t the economy (which means more uncertainty). It’s also important to remember: Bear markets and economic recessions are not the same thing. A bear market is when the market drops at least 20% from its most recent peak. A recession is at least two quarters of negative economic growth. A bear market does typically precede a recession. But not always, and rarely according to a tidy timeline. The point is, the indicators are very messy, which makes it effectively impossible to predict when bear markets will come and go.
- Over time, positive returns prevail. Bottom line, trying to time your market investments according to breaking news is at best a pointless exercise. At worst (and more likely), it will hurt your investments. In the near term, we can’t know what the markets are going to do next. But we do know, 10 years out, they’ll likely have doubled from their previous peak. Come what may, there is still money out there. People are still spending some of it. Companies around the globe will still prosper by selling them profitable goods and services
- Investors who sit tight with a well-planned portfolio should also prevail. Bear markets are scary; let’s not deny that. But your best bet is to let go of the fear, and focus instead on building and maintaining a globally diversified investment portfolio that reflects your goals and risk tolerances. The best way to get through the scary times is to stick with the markets, and the overwhelming odds for their future recovery.
For more related insights, tune into our “Think Smart” podcast, “Coronavirus Correction: Where Does It Leave You?” and let us know if we can assist.
