Investing in the Age of Coronavirus (and Similar Global Threats)

Only a few months ago, few of us had even heard of “novel coronavirus.” Today, it’s hard to avoid the latest news about it. Thankfully, U.S. citizens and markets alike have remained relatively immune so far. But still, you may be wondering whether you should try moving your investments out of markets that have been, or may be exposed to its economic impacts.

Our advice is simple, and grounded in experience gained from past, similar episodes: Do try to avoid this or any other health risk through good hygiene. But do not let the breaking news directly impact your investment stamina.

If you’re already following an evidence-based investment strategy …
• You’ve already got a globally diversified investment portfolio. 
• It’s already structured to capture a measure of the market’s expected long-term returns.
• You’ve already accepted (at least in theory!) that tolerating a measure of this sort of risk is essential if you’d like to actually earn those expected long-term returns. 
• You’ve already identified how much market risk you must expect to endure to achieve your personal financial goals; you have allocated your investments accordingly.

In other words, it may feel counterintuitive, but leaving an existing, carefully structured portfolio exposed to global risks as they occur is already part of the plan. All you need to do is follow it. 

If you’re finding that hard to do, here are a few reminders on why we recommend this approach. Or, if you’ve not yet created a personalized investment portfolio as described, these same points may inspire you to do so today. There’s no time like the present, because …

Markets are durable. We by no means wish to downplay the socioeconomic suffering coronavirus has created. But even in relatively recent memory, we’ve endured similar events – from SARS, to Zika, to Ebola. Each is frightening as it plays out. But each time, markets have moved on from the stress tests they represent. Overwhelming historical evidence suggests capital markets will once again endure.

Markets have already adjusted to the latest news. Bottom line, markets are too efficient to toy with. As each new piece of news is released, it’s nearly instantly reflected in new prices. So, if you decide to sell your holdings in response to bad news, you’ll do so at a price already accordingly discounted. In short, you’ll lock in a loss, rather than ride out the storm. 

To benefit from a recovery, you must remain invested. For better or worse, markets are going to take a hit now and then. When they do, history informs us, they’ll also often recover dramatically and without warning. As “The Behavioral Investor” author Daniel Crosby has observed: “[T]he irony of obsessive loss aversion is that our worst fears become realized in our attempts to manage them.” In other words, if you exit the market to try to avoid the pain, you’re also likely to miss out on important portions of expected future gains.

The economic repercussions of widespread viruses (whether real or virtual) represent real market risks. While it’s never fun to tolerate risks as they occur, we believe doing so remains your best course of action in the face of an unknowable future. 

Be well, and let us know if we can help you maintain the sensible portfolio you’ve already built. Or, we’d be happy to help you build a durable investment strategy if you’ve not yet got one in place. 

For more information, please contact:
Daniel Shub
Wealth Advisor & Founder
OCTO Capital Wealth Management
248-731-7729
​www.octo-capital.com

​OCTO Capital, LLC is a Registered Investment Advisor.