If you are like me, you find the daily onslaught of news about Coronavirus worrisome. It’s natural to wonder how the spread of the virus may impact you and your family.
For investors, these concerns come with additional questions about the impact on investment portfolios.
Obviously, I’m not a medical expert. But based on all available information, it now seems reasonable to assume that one or more of the following may occur:
- Canada may experience “clusters” of the virus (like those in Italy and South Korea).
- Quarantines and travel restrictions may be put in place in Canada and the US as governments try to contain the spread of the virus.
- Individual Canadians and Americans may restrict (or be restricted) in their day-to-day activities, such as shopping, dining out, travelling and going to work.
Given the above scenarios – some of which are already happening in other countries – there are also potential economic impacts to consider:
- There may be additional declines in the markets and stock prices.
- Depending on how quickly the virus is contained, there is the potential for a slow down and even a recession in the North American economy.
If you have been following my blog or reading my books, you know that this is exactly the sort of situation I often discuss. In the face of possible – or actual – market volatility, it is critical to maintain your investment discipline.
When I talk about being strategic, I mean making evidence-based decisions and avoiding the detrimental impact of investment decisions based on emotion.
I outline this thinking in my book The Introduction to the Investment Mindset: Minimizing Emotions to Maximize Returns. (If you haven’t read it, you can get a free copy here. It takes less than an hour to read.)
The book illustrates how unreliable our impulses can be during stressful times. It explains that instead of relying on your “gut,” you should rely on processes designed to optimize decision accuracy.
In particular, you want an investment strategy and investment models that are based on historical evidence about market success and guided by relevant information so you can maximize investment returns.
That’s what you signed up for when you joined Dri Financial Group. And that’s how you will stay rich.
How do markets perform when there is a viral outbreak?
I’m a big believer in getting the facts. So let’s ask ourselves, “Is there a precedent for how an outbreak impacts markets?”
The answer is “yes.” We know how the markets reacted during the Avian flu, SARS, H1N1, and Ebola.
Scotia Wealth Management’s February 25th 2020 Market Update shared insights about S&P 500 Index price performance following virus outbreaks:
- Subsequent to the announcement of the first COVID-19 case, the performance of the S&P 500 has closely mimicked a trajectory that is consistent with other viral outbreaks.
- Epidemic-related volatility has historically been short lived.
Our advice about what to do
The best approach for investors at this time is to stay the course, believe in the strategy, and keep your composure and discipline.
To that end, here are seven principles of the Dri Financial Group that you have been following and will, I hope, continue to embrace:
- Philosophically, we believe that global economic conditions will continually improve (although not in a straight upward line). Investing in high quality companies allows you the opportunity to benefit from that progress.
- We take a long-term view of investing and encourage you to follow your Investment Policy Statement.
- Our asset allocation decisions for you reflect your age, risk profile and time frame.
- Three to five years of your annual cash flow requirements (RRIF payments) are in guaranteed investments such as government bonds and GICs. This ensures that lifestyle expenses are funded by GICs in the event stocks need some time to recover.
- We invest approximately 10-20% of our portfolios in a tactical model which transfers funds into the market during positive trends and out during negative trends.
- Our models minimize the impact of volatility because they are historically back tested. (You can review the historical performance of our models here.)
- Where possible, we institute a Dividend Reinvestment Plan (DRIP) which directs cash dividends to the purchase additional shares of the issuing company. (One inherent benefit of this process is that it involves buying more shares when prices are lower and buying fewer shares when prices are higher, which is a built-in buy low, sell high approach.)
What’s the bottom line? You made the right decisions long before the virus broke
I know this is a stressful time. My family and I are feeling it as well. Even just thinking about all the families that have been impacted around the world is troubling.
And I completely understand that you are worried about your investments. That’s natural.
You don’t need to be. When you joined our group, you committed to a long-term, evidence-based strategy designed to protect you at times like this.
All you need to do is let the process work.
That said, I’m happy to talk any time if you have question or just want to understand the situation better.
Feel free to call our office to book an appointment or The Dri Financial Group online appointment calendar.
I wish you health and patience as we endure another life event.
Did this article resonate with you? What did I miss? Send me a note and let’s start the conversation.
The process of finding a financial planner can be overwhelming. Our proprietary financial planning process is designed with you in mind. Its simple framework helps you make an informed decision about hiring the appropriate advisor commission free financial planner in Ontario.
Call me if you in want to map out how you can Never Retire. You can also subscribe to our Live Well, Stay Rich, Never Retire newsletter, contact us to order a complimentary book, register for one of our events, and call us to meet with a Certified Financial Planner. We offer you a range of services from a financial plan to investment advice or helping you take advantage of our investment models. Call me at 416-355-6370 or email me at richard.dri@scotiawealth.com.
source https://richarddri.ca/how-investors-should-navigate-the-coronavirus-situation/
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