The last five days have certainly been an interesting time to be an investor in the stock market. After an initially muted reaction to the coronavirus reports, stocks are now down 13% from their high. In this special coronavirus podcast Dave and Steve discuss their thoughts and concerns going forward. Here are a few highlights:
The market: While the market is down 13% from its high, the S+P 500 is still up around 6% over the past 12 months. It is certainly possible that things could get worse as the impact of the virus is felt in economies around the globe. It is even possible that the coronavirus could be the long awaited catalyst that tips the economy into a recession. That said, we have to remember that market declines and recessions are a normal part of investing. On average, a 10% market decline occurs every 10 months. A 20% market decline typically occurs every 3.5 years. It has been 11 years since the last decline of more than 20%.
Changes we are making: We don’t believe anyone can accurately predict the right time to get out and the right time to get back in. It is times like this that we are reminded why we hold conservative assets such as bonds, cash and annuities. These assets can provide us with a safe place for withdrawals without being forced to sell stocks low. With this in mind, we will be adjusting all withdrawals going forward to come from your non-stock assets until the market has recovered. We will handle this and no action is needed from you.
Reasons for optimism: The markets have successfully weathered past outbreaks such as SARS, MERS, swine flu and bird flu. In most of these cases the stock market generated a decent return 12 months after the outbreak. Short term declines have often created an excellent buying opportunity for long term investors.
Further reading: If you are eager to read more, here is one of the better responses we have seen: https://lgam.com/an-update-on-the-coronavirus/
As always, feel free to reach out with any questions or concerns.