Given the recent market volatility due to the coronavirus, we at Oculus Private Wealth wanted to provide you with some insight and tips on how to view investing during uncertain times.
1. Don’t Panic. We’ve been here before…
As unprecedented as much of the coronavirus’ impact has been, it’s important to remember that we have been in similar situations before. At the time, many past viruses resulted in immediate market losses, but on average, after an initial viral outbreak, the market is up 10%, 6 months later.
2. Don’t Panic. Don’t Sell your holdings. Stay Invested.
When things get choppy, the worst thing to do is sell out, as you are likely to sell out at a market dip, or the bottom. When you do that, you realize your losses. By staying invested, you are giving yourself a chance to take advantage of a market rebound. Selling out, and timing when to buy back in (in a lump sum) is very difficult to do. The best thing you can do is take advantage of auto contributions and reinvested dividends that are added to your investment account. This is called Dollar Cost Averaging, and results in you buying at market lows, owning more shares, and having a lower average purchase price.
3. Remember… Diversification is key.
Every investment portfolio that we utilize adheres to the rule of diversifying your holdings between various asset classes; primarily, Equities and Fixed Income. Depending on your risk tolerance, the percentage of your Equity and Fixed Income will vary person-to-person. In times like these, there is nowhere to hide; as of this writing (March 16), even safe-haven asset classes like Gold are down. But, investing across different asset classes and geography results in your investments going down less than the overall market. When the markets are volatile, Fixed Income outperforms. When times are good, Equities outperform. By being diversified, you will have a smoother investment experience over time.
4. What is a trading Halt?
You may have heard of a “halt in trading” recently, so, we wanted to provide some clarity surrounding this market feature. Due to the recent panic selling we are seeing in the markets, stock exchanges can invoke Rule 48, to halt trading in order to ease severe downturns. Circuit breakers kick in when the S&P500 drops 7% for level 1; 13% for Level 2; and 20% for level 3, from the prior day’s close. Trades are halted for 15 minutes. As previously mentioned, this is a feature dedicated to help mitigate market downturns, and will not have a negative day-to-day impact on your investments.
5. What’s next?
This current volatility is unprecedented, but again, that is why being diversified across assets is key. Since the cause of the market downturn is a panic selloff, one of the main things that will truly help is some good news, such as a report that coronavirus numbers are decreasing. The future is uncertain, but remember, just as Bull Markets will inevitably fall, Bear Markets will inevitably rise. It’s difficult to know when the current Bear market will end, but governments around the world are doing everything in their power to help stabilize the markets. The US has lowered interest rates to zero and are beginning their quantitative easing program. So when the panic settles down, governments are positioning themselves in a positive manner to help the market recover.
