At the time that I’m writing this blog post (8:30 am pacific on March 9, 2020), volatility and fear in the markets are setting in.
The Bad News
Concerns about coronavirus are gripping the world. People all over the world are sick and dying. Here in the United States, we are now up to 566 confirmed cases of Covid-19 (this number will seem quaint and outdated in days).
In Korea, citizens are lining up outside stores and pharmacies during their designated one day of the week to purchase their allotment of two face masks.
Meanwhile, Rocket Man is doing Rocket Man stuff and shooting more more missiles.
And, oil prices have plummeted as Saudi Arabia engages in a price war with Russia. World stock markets overnight, and US stock markets this morning, have followed.
This headline and these pictures from CNN Business tells you everything you need to know:
So, What Should You Do?
First of all, when it comes to Covid-19, don’t get your news from politicians (Republicans, Democrats, Socialists, etc.), who say silly things like this:
Instead, take your advice from the experts – scientists and medical professionals. One really good resource with practical advice is the Department of Homeland Security’s website on preparing for disasters and emergencies at Ready.gov.
Maybe Covid-19 will turn into a pandemic killing hundreds of millions worldwide. Maybe it will fizzle out completely in a couple months as the temperature turns warmer. Maybe it will be something in between.
I have no clue how Covid-19 will play out, but from a financial standpoint, panic is not going to do any good. But, it’s a good time to think about your risk tolerance and whether you have the right asset allocation for your own piece of mind.
As of this writing, the S&P 500 is down almost 7% today and 10% over the last 5 days.
At a 7% drop per day, stocks will be essentially worthless in a month or two! In the past few days, I’ve run into people who are talking about investing in Gold or selling all of their investments to sit in cash while waiting out the next downturn. A few more drops like this, and the doomsday Permanent Portfolio will start to get some traction again.
If you are someone who has already done their planning and set their asset allocation, congratulations. There are going to be days, weeks, months and years where certain markets perform poorly. That’s just how things work. You planned for this. Without risk, there isn’t reward (what other tropes can I throw in here?).
About that 7% drop in the S&P 500 today? Here is the long-trend of the S&P 500 over time:
If you have done your personal finance plan but are realizing that you can’t take the volatility of stocks over the past several weeks – maybe you have lost money you were counting on spending soon or maybe you’ve never experienced a downturn before – this is a learning opportunity, and maybe you will need to lower your stock asset allocation over time. But, keep in mind that selling now locks in your losses.
If you haven’t done your planning and don’t know what to do, calm down and start planning methodically.
