Financial Geekery

What do I do about my investments and Coronavirus?

March 5, 2020

Virus SARS-CoV-2 and its resultant disease COVID-19 have gotten the markets shaken. And rightfully so: while the current global death toll is relatively low compared to, say, the 34,000 US flu deaths from the 2018-2019 season, the quarantine response has dramatically affected global productivity. Productivity affects corporate profits, which affect securities prices, which affect your portfolio. 

 

So: what do you do? Answer (and you'll get tired of me saying this): nothing you shouldn't have been doing already. More specifically:

 

  • Don't panic.

  • Keep cash for short-term needs.

  • Diversify.

  • Make sure you have the right asset allocation.

  • Consider opportunistic rebalancing.

 

Don't panic.

 

If you're reading this, chances are that you're not the sort to panic. And perhaps "panic" is a strong word. "Reign in your desire to take immediate action without considerable thought" might be better. Markets are highly efficient at pricing stocks and bonds; much of the available information has already been taken into account, regarding both the present and future! There are still a lot of unknowns, of course -- "always in motion is the future" -- so prices will change up or down as we learn more. Meanwhile, though, unless you have a crystal ball, don't pretend to know more about the global short-term future than the markets! (And if you do have a crystal ball, why the heck are you reading this?)

 

Keep cash for short-term needs.

 

Of course, this implies that you're actually planning out your short-term needs -- which you should! I highly recommend using targeted savings accounts to make sure you're saving up for what you need; rather than having generic "savings", use emergency savings, car savings, travel savings, home down payment savings, etc. Given that those will be in FDIC-insured savings accounts, the worst that will likely happen is its interest rate changes!

 

Diversify.

 

Stocks and bonds, US and international, real estate and (maaaaaybe) commodities -- spreading out your investments will help keep your portfolio from taking too big a hit from any one punch. Sure, COVID-19 is having a worldwide effect, but the effect is quite different on bonds than it is on stocks!

 

Make sure you have the right asset allocation.

 

If your investments just took a dive so deep that it makes you wake up in a cold sweat, then you're likely tilted too heavily towards volatile assets like stocks. You might consider making your asset allocation more conservative. Warning, though: resist the temptation to move it back to a more aggressive stance once things are "clear" -- that's also known as "selling low, buying high", which is not a great way to invest!

 

Consider opportunistic rebalancing.

 

If you're investing with Seaborn, we're already keeping an eye on this, but if you're more of a DIY person, consider opportunistic rebalancing: once any of your asset classes are more than e.g. 20% out of balance, you could take the opportunity to "buy low and sell high".

 

For example, let's say that you've decided that your "US Total Stock Market" allocation should be 40% of your overall portfolio. If it dips below 32% (20% lower), you might sell something that's done well (bonds, anyone?) to buy more US stocks. Check this out for more of the details.

 

For some of you, this sounds counterintuitive -- stocks are going down and you're buying more? -- but it's a classic Buffett-type buy-when-everyone-else-is-selling strategy that research has proven out over time, per the aforementioned article.

 

...and that's it.

 

Don't watch the news and try to guess what to invest in (Purell! Toilet paper! Surgical masks!). Don't sell everything and put it under your mattress. Don't invest your emergency savings in the market to attempt to "buy the dip". Keep your head, take the long view, and don't panic.

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