Fear is Contagious

Feb 29, 2020

The world equity markets are currently experiencing steep losses due to concerns over the ongoing Coronavirus outbreak. There is much concern over the spread of the virus (as there should be). But what, if anything, should you do with your investments?

The most important thing you can do right now is not act out of fear. Fear is actually more dangerous and more contagious than the Coronavirus. There was a very good article published this week (click here) pertaining to the Coronavirus. It discusses some of the potential dangers of letting your fears run wild. In a very real way, fears can be contagious. From the article: “Fears can be learned. If you’re communicating with people online who are afraid or are seeing people online who are afraid, that exposure is more likely to invoke fear in you.” And the article ends with “Panic is the biggest enemy you face in any emergency,” Capua says. “Panic can do much more damage than the virus.”

We all know acting out of panic rarely works out, but that does not mean it is easy to avoid. Reflecting on a few key points about our investments and financial plan should help calm our nerves and help us all make better decisions:

1) We KNOW market volatility happens and it is normal. It might be a virus now, but there is always another crisis around the corner. There will be recessions, wars, and political strife throughout the world and throughout time. It is inevitable.

2) You will NEVER better your return or lower your risk by timing the market. The famous investor Peter Lynch said: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” You might exit the market and avoid some of the downturn, but you will NEVER get back in before the market rebounds past your exit point. The very best investors in the world cannot do that successfully. Anyone who tells you they can is lying. Period. If the net result of exiting the market is a worse return and higher risk, why do it?

3) A solid investment and financial strategy PLANS for these events in advance. No part of your long term plan was based on having to jump in and out of the market. If you are older and at or near retirement you own bonds in your portfolio. Typically 6 to 10 years of living expense worth. And bonds are UP for the year. You do not need to sell equities right now. If you are young or aggressive, then put more money in the market right now! I don’t know what the next 6 months or year holds. We may be in the midst of a recession or we may still be in this booming economy. I do know that in 10 years the year 2020 will be a blip on the radar. And the very best chance of you having more wealth then than you do today is investing in equities.

If we KNOW market pullbacks are normal and we can NEVER successfully time the market and we have PLANNED for these type events in advance, then there is no reason to get out of the market except for fear. And fear can do much more damage than a virus.


Submit a Comment

Your email address will not be published. Required fields are marked *