Stay Calm and Focus on What You Can Control
It’s understandable to be concerned about your portfolio but you have been preparing for an emergency like this by maintaining a diversified portfolio. If you didn’t anticipate volatility you wouldn’t have kept a significant portion of your assets in safe investments, outside of the stock market. Remind yourself that your money in the stock market is for the long-term. Money needed in the short term is held outside the stock market to enable you to weather significant market fluctuations, like we are currently experiencing. Don’t panic, stay the course and maintain a long-term perspective.
The current drop in the market is different than many previous market declines because it is driven by one event, the coronavirus. Although this creates tremendous uncertainty, this crisis will pass, and life will return to normal once the virus is under control. With previous health scares, the market initially reacted with a sharp decline followed by a return to normal in about 4 to 6 months. With the coronavirus, we have seen a significant drop in the market that is likely to get worse before it gets better. Furthermore, extreme measures taken by the government and companies could delay the recovery.
Keep in mind that stock markets are efficient. This means negative implications from decisions or events that have occurred, such as disrupted supply chains and lost revenue from cancelled events and activities, are already reflected in the market. However, there is still a lot we don’t know about the virus and new information, good or bad, will influence the future direction of the market.
You have no control over global markets so focus on what you can control and how you react to the crisis. To avoid selling stock during a down market, you need to maintain an emergency fund of 4 to 6 months of expenses. You also may want to secure a line of credit. These are especially important during this crisis because you may be required to take off time without pay or may lose your job altogether. To be prepared for the unexpected, it’s wise to reign in expenses and avoid unnecessary debt. If you don’t have an emergency fund, consider taking dramatic steps to decrease discretionary expenses to establish one.
If you view this market decline as an opportunity to buy stock at bargain prices, avoid the temptation to time the market. It’s impossible to anticipate the right time to buy or sell stock. If you have funds available and you want to invest in stock, establish an automatic investment plan to dollar cost average into the market. Gradually invest a set portion of your money every two weeks or once a month. Don’t invest it all at once based on an emotional reaction to a sudden drop in the market. Make sure any new purchases are in alignment with your financial goals.Written by Jane Young