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Staying Mentally Tough – Coronavirus and Stock Market Volatility

With over 1.1 BILLION mentions across social and news media (source: Google News), you can't even hold a casual conversation right now without someone mentioning the number one trending topic...human coronavirus.

According to the CDC,1 the recent coronavirus (COVID-19) outbreak has claimed nearly 5,000 lives and impacted nearly 132,000 people worldwide as of March 12th, 2020 and it has also dropped critical levels of fear into the markets. If you’re invested in the stock market whatsoever, you have no doubt found yourself sitting on the edge of your seat duringthe last few weeks as we watch the rollercoaster of huge market volatility swings.

First and foremost, we are here for you. I want to take this opportunity to update you on some thoughts related to the coronavirus, current impact on the financial markets, and, ultimately, on your personal financial situation.

A Brief History Lesson 

Negative market response to a large scale health crises is nothing new. How is coronavirus impacting the market and your personal finances?  The below table shows that since 2003, approximately six months after early reports of a major outbreak, the S&P 500 bounced back by an average of 10.47 percent. After 12 months, it rebounded by an average of 17.17 percent. 

Epidemic Month-end* S&P 500 6-month performance S&P 500 12-month performance
SARS Apr. 2003 14.59% 20.76%
Avian (bird) flu Jun. 2006 11.66% 18.36%
Swine flu (H1N1) Apr. 2009 18.72% 35.96%
MERS May 2013 10.74% 17.96%
Ebola Mar. 2014 5.34% 10.44%
Measles/Rubeola Dec. 2014 0.20% -0.73%
Zika Jan. 2016 12.03% 17.45%

Source: Dow Jones Market Data, cited on MarketWatch.com February 24, 2020. 

*End of month during which early incidents of outbreak were reported

Why is it important to take a look back in time? I'll be the first to say that there are no guarantees the current situation with COVID-19 will follow a similar pattern to the above epidemics, however it helps us to better understand and more importantly put into perspective that historically over long periods of time, despite an epidemic and the ensuing panic whether rational or irrational, stocks typically regain their long-term upward track.

Market Psychology

As we explored above, all assets rise and fall in value. The more extreme the swing, the more painful the pinch and more chance we will resort to acting emotionally. Weathering this market psychology is by no means easy, but learning how the market works can help to reduce stress and help you gather the mental fortitude required to “stay the course."

I want to make this loud and clear for everyone - Your investments are designed to support your long-term objectives, not today’s needs. In situations like this, it is important to have perspective and remember that swift market drops are not unusual. This has happened before and will eventually happen again. Of course, the headlines are scary and fear of the unknown is scariest of all, but the nature of the market is that it will go up and down. The current state of affairs is just par for the course.

To relate it back to real life, our emotions share a similar reaction between excitement and depression. Surges of pleasure with favorable uptrends and sometimes borderline neurotic negatives with declines. Unfortunately, emotions can be drivers for bad decisions and selling early thus diminishing significant gains that can occur over the long-term. 

We believe the best response is to acknowledge what you’re feeling, reach out to us if that would be helpful, and have confidence that we are on top of the situation. And always keep in mind that in the short term, market movements can be heavily influenced by headlines and computerized trading, but in the long term, markets tend to reflect broader-based economic trends. One of our most important roles as your advisory firm is to not let the difficulties and short-term hype prevent the reaping of potential benefits of sound, long-term investing.

What Should You Do? 

The answer is simple: Don’t panic. 

Sure, fear is a natural emotion to encounter during turbulent times especially when a health epidemic hits like a virus that can impact both your health and your finances. When market corrections occur (classified as a drop of 10 percent or more in one of the major U.S. stock indexes) the media reliably tends to add fuel to the fire. It’s important not to make any alarm-induced moves during a correction. Instead, stay vigilant and stay the course. 

Acknowledge that the market is not just about winning and losing – it’s about strategy and duration. The virus and how it spreads is completely out of our control, but our reaction to the financial markets is something we can control. It’s not fun seeing your portfolio drop, But at the same time, we know market volatility is normal and expected. The key is to “zoom-out” and look at the long-term big picture. 

What We’re Doing

What we do know for a fact is that the market will continue to do three things: It will sometimes go up, it will sometimes go down, and sometimes it will barely budge. The other absolute certainty? Your financial well-being is our number one objective. 

Our team is burning the midnight oil to monitor the situation as it unfolds and recommending actions as appropriate. 

And we will leave you with one final piece of good news: sometimes, situations like this can actually create opportunities. For example, as prices drop, we will also seek out any opportunities to “rebalance” and shift your asset allocation if it aligns with your long-term goals. 

If you have any questions about your specific situation, please contact us. We are here to help and we are here for you. Thank you for your continued trust and confidence.

  1. https://www.cdc.gov/coronavirus/2019-ncov/cases-in-us.html

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About the author: Kyle A. Davis is a Chartered Financial Consultant® , Chartered Advisor in Philanthropy® , and president of Integrity Financial Group in Orlando, FL. He is a Florida  native and an advocate for financial literacy and practical money  education. When not assisting clients in planning for retirement, he  creates educational videos on financial wellness on his YouTube Channel -  https://www.youtube.com/user/financialplannerinfl

This content is developed from sources believed to be providing accurate information. The information in this material is not intended as investment, tax, or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

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