SELL! SELL! SELL! This is the typical response recommended by the media right now as they go about trying to make some sense out of things that are unable to be understood, forecasted or responded to. It’s what they do.
What should you be doing with your portfolio to account for the coronavirus? If I had a dime for how many times I’ve heard that over the past couple of weeks, I’d already be retired. Seriously though, what should you be doing with your portfolio to account for the coronavirus? I am just kidding because I am not sure what that question even means.
I don’t personally believe anyone should alter their portfolios due to the coronavirus. I’m not trying to downplay the health risks associated with it, nor anything else, but to believe that you should “do something with your portfolio” due to this health scare seems absurd to me.
People sell because they don’t know what they own. They believe they own some portion of the future earnings of an erratic slot machine. When, back here in reality, they own portions of some of the best managed, most well-capitalized businesses in the entire world. Are we to believe that over the span of one week that the value of these businesses ACTUALLY dropped 15%?!
Think about this on a smaller scale. Do you think your local coffee shop or pet store owner is putting their business up for sale because of the coronavirus? I think that’s rhetorical. Then why do we feel we need to be selling our portfolios comprised of businesses that have much longer track records and a laundry list of superlatives?
That may be beside the point anyway. Here’s the key: If you have appropriately allocated your portfolio to account for these all-too-common-and-expected market corrections, then the answer to the “What should you do?” question is to keep going to work, or playing golf, or reading books, or whatever. Anything but turn on the TV, lest you risk making a decision you will most likely regret.
People who are selling at this moment may feel some level of comfort that they have stopped the bleeding. What they haven’t done is determined when will they get back in? What if today is the last day of this “sell-off” like Christmas Eve was? I’ll bet that most people who decided to sell have no plan whatsoever as to when to get back into the market. They just had a panic-driven desire to get out. I get it. It’s a natural feeling.
But one of the many problems with trying to time the market - and make no mistake, that’s exactly what this type of reaction is - is that you have to be right TWICE. You have to be right when you get out AND when you get back in. If today is the last day of this, then the people getting out today have negatively impacted their long-term rate of return. It may even be drastically altered depending on when they reinvest.
Returning to what I said above, if you have properly allocated your portfolio and have some percentage of your funds set aside to account for a couple/few/whatever years of income in more conservative assets, then what difference does it make what happens in a couple of weeks/months?
Just remember, your portfolio was built for this. It was built to handle just this type of market correction even if it goes on for quite a bit longer. It’s why you wisely planned before the storm came.
This too shall pass.
This post is not advice. Please see additional disclaimers.