Investing during volatile times feels like running into a burning building. It goes against human nature. The coronavirus outbreak and subsequent efforts to slow its spread feels a bit surreal. Our daily lives have been altered, and that’s something we take incredibly seriously. Change is scary enough under normal circumstances, but nothing about this outbreak feels normal. Restaurants and bars are closing, school is canceled, large events are being postponed, and fear and anxiety are growing…quickly. The things we would normally do to ease our minds during stressful times are not as accessible. No one is quite sure when this will end, and that’s a scary proposition. Naturally, I’ve had many clients, friends, and family members ask me what I think will happen next, and unfortunately, I don’t know. As John Kenneth Galbraith said, “there are two types of economists, those that don’t know and those that don’t know they don’t know.”

I don’t know how many people will be infected, what the mortality rate will be, how long before we can resume many of the activities we’re used to, or how long before the stock market bottoms. But I do know that this crisis will pass. It’s hard to see the end when you’re staring into the face of a crisis, but it’s true. It may take weeks, could be months, or even longer, but the markets will resume, and our economy will push forward. I also know that when looking back at other event-driven periods of extreme volatility, we are likely looking at a zone of opportunity for those whose time horizon, risk tolerance, and investment objective allow for it…and that’s part of the silver lining of these unfortunate circumstances.  

During discussions with clients who are concerned (and rightly so) about the coronavirus and its impact on the financial markets, I like to say that times like these are the price to admission to participate during the good times and remind them that short term risk is part of the equation that leads to long-term rewards. During my 33 years, our nation and world has faced numerous crises, including the attacks of September 11th, the dot-com crash, the financial crisis, among others. Each of these historical events was scary and left a scar to serve as a reminder. The coronavirus epidemic will leave a scar too. We’ll learn a lot about ourselves, each other, our nation, and our world. We’ll come out better prepared for future epidemics. Certain technologies will emerge and be retained post-coronavirus, making life better for many people. The markets will recover. 

Remember, we invest within a particular asset allocation for a reason. These intentional decisions are built on the three pillars of investment decisions: risk tolerance, objective, and time horizon. The plans are grounded on the evidence of history, and that history includes many uncertain times when people felt similarly anxious about the future. If you don’t have a plan, it’s a good time to create one, and I’d be happy to discuss your circumstances and goals to develop a suitable plan. If you feel like you’re running into a burning building as you invest during volatile times, take some comfort in knowing that the market has bounced back from every crisis to date, and there’s no chance that I’m betting this one will be any different.

Keep this quote in mind if you start to consider abandoning your financial plan:

“Talking about being a long-term investor during a bull market is practice. Behaving like a long-term investor during a bear market is the game”. 

Here are a few opportunities today you may consider taking advantage of:

1)      Fund accounts with long time horizons like 401ks, 529 plans, IRAs, HSAs, etc., while the markets are down.

2)      Since account values are lower and tax rates are also low relative to history, Roth conversions could be a good strategy for some people.

3)      Look for opportunities to harvest capital losses that can be used to offset capital gains now or in the future.

4)      Rebalance accounts back to your strategic asset allocation if the market movement has caused your allocation to drift.

5)      Interest rates are at record lows. Consider refinancing your mortgage to reduce the amortization or payment.