Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.
OK, so things are a bit nutty out there. We all know that, and we all know basically what to do: evaluate our goals and our path toward those goals, thoughtfully and calmly.
I recently listened in on a conversation with Morningstar's equity analysts and investment researchers about the impact of the virus that causes COVID-19 on markets around the world. (Insider tip: It's the same message and analysis shared with readers in our house view, because that's how Morningstar works.)
In addition to the thoughtful analysis, I was particularly impressed by the tone: calm, thoughtful, and action-oriented. It reminded me that moments like this are about more than our own financial picture. They are about who we are as a society and how we influence one another.
How We Respond to Coronavirus Matters First and foremost, we need to remember that panic is a social phenomenon, whether it's panicked selling of investments or panicked buying of sanitizer at Costco. Sure, there's an underlying trigger, but our actions and our tone have the power to either turn that trigger into a crisis or into a blip that we quickly see in the rearview mirror.
But we don't think about that dynamic as much. It's not what other people do in times like this that create problems; it's what we do. There are no "other people." It's true for the markets, and it's also true for our mental health right now.
Managing the Impact of Coronavirus in Our Investments Personally, as a contrarian investor, I try to identify buying opportunities when there's a down market. But that isn't all there is to it.
Morningstar director of personal finance Christine Benz and others have talked about the value of rebalancing one’s portfolio now. That’s because, generally, when stocks are down and bonds are up, we maintain our asset allocation by selling high and buying low.
This tactic also helps counter the crazy. By buying when others aren't, we help limit the carnage, in our small way. And that helps real people avoid potentially dire situations.
As many studies at Morningstar and beyond have shown, people lock in their losses by pulling out at the bottom of a down market. It’s not the stock market decline itself that hurts them per se; it’s that they exit and then miss out on the subsequent market upswing (which will happen, it’s just a matter of time).
That’s a serious loss for retirees living off their investments or young families planning for their first house purchase. It means cutting back, living on less, and perhaps not even being able to pay the bills.
Buying when others aren’t helps decrease the chance that people will panic and pull out, and it softens the blow if they later do. Keeping our heads and thoughtfully evaluating our investments means, ever so slightly, smoothing things out for everyone else.
Managing the Impact of Coronavirus in Our Daily Lives The impact we have is felt not just in our investing but also in our daily behavior.
Last week, I talked with an old friend about my fears around the coronavirus. We fed off each other in our fear, and it just made things worse for both of us. And we spread that message of fear to others as well.
We didn’t go out and buy face masks or such, but many others have. I know there’s already such a shortage of masks that nurses and doctors--the people who really need them--are running low. When I cause someone to become more panicked, I’m hurting my own doctors, my own family, and my own country.
Instead, we can help carry the alternative message that Benz, healthcare strategist Karen Andersen, and many more at Morningstar and elsewhere are offering: a calm, thoughtful analysis of the facts. Perhaps then, things will turn out better, both in the markets and in all of our lives.