The equity markets saw more declines this past week over fears relating to the spread of the coronavirus (COVID-19). Trading through the close on February 28th saw the S&P 500 drop over 12% from its recent peak—wiping out $3.6 trillion in market value. In addition, the Dow Jones Industrial Average just had its worst week since the start of the 2008 global financial crisis. (1) The swift decline has only added to the anxiety about what the future holds for the financial markets as more uncertainty looms about the coronavirus.
Investors are understandably nervous about their money and their health. If you are worried about your investment portfolio, you’re not alone. But during periods of heightened stock market volatility, it’s important to keep a level head to avoid financial mistakes. This can be hard to do, especially with all of the negative headlines about the coronavirus you may be seeing each day.
In times like these, it’s important to put current conditions into perspective. This is not the first time the stock market has taken a tumble and it won’t be the last. Since many people correlate the Dow Jones Industrial Average (DJIA) to the stock market, I wanted to provide some historical data about market declines we’ve seen in the past. Declines in the DJIA are actually fairly regular events. In fact, drops of 10% or more happen about once a year on average.
It’s important to remember that financial markets dislike uncertainty. With so much uncertainty over how fast the virus could spread and the potential impacts, volatility is extremely high right now. As we get more clarity about the current situation, it is likely that day-to-day market fluctuations may seem less extreme.
We simply do not have enough information yet to know how the coronavirus will impact the economy in the short or even longer term. It’s possible that the virus will soon be well-contained and the markets may begin to recover. But it is also possible that the virus will continue to spread and become a more serious global health event.
Remember The Importance Of Diversification
Market declines are never fun and can be quite stressful for many. However, keep in mind that while equities may be down significantly over a short period of time, your portfolio should be diversified and made up of equities, fixed income and other assets that are designed to work together to decrease overall volatility. It’s also important to consider your specific situation and investment time horizon when reflecting on recent market events. Those in their 30’s, 40’s and 50’s may have a much longer time horizon than a retiree in their 80’s. It’s so important to keep these things in perspective during bouts of extreme volatility.
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. At FWM we seek to serve as a support system for our clients, helping them make informed financial decisions that aren’t driven solely by emotion.
About Rocklin Senavinin, CFP®
With over 20 years of experience in the financial planning industry, Roc has dedicated his career to helping individuals live comfortably in retirement and enjoy the assets they have spent their career building. He is co-founder of Fiduciary Wealth Management, a fee-only registered investment advisory firm in Little Rock, Arkansas. As a CERTIFIED FINANCIAL PLANNER™ professional, he has advanced training in the holistic process of creating a personal financial plan that addresses a person’s comprehensive needs for the short and long term. To learn more, connect with Roc on LinkedIn or visit www.fidwm.com. If you have questions, feel free to schedule a phone call using this link.
The views expressed represent the opinions of Fiduciary Wealth Management, LLC 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.
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