Every new reported case of COVID-19, the disease caused by the novel coronavirus, seems to send the Dow Jones Industrial Average down another 100 points.
The popular perception that the federal government is unprepared for an outbreak in the United States doesn’t help matters.
That has wreaked havoc on the markets. They fell 13% in seven trading days.
Is it different this time? It certainly feels like it. Events are being canceled around the world. Schools are closing in Japan, and factories in China have temporarily shut down.
Yet more people have died from the flu in the United States in 2020 than have succumbed to COVID-19 worldwide.
The market sell-off looks like a “shoot first, ask questions later” response. Stocks have been in a bull market for 11 years. The virus scare could be an excuse to take profits.
Investors might also be selling stocks because first quarter earnings will most certainly be affected for some, and perhaps many, companies.
So should you sell your stocks?
It depends on your time horizon.
If you need the money that’s in the market within the next three years, you should sell. But don’t sell because of coronavirus – sell because you can’t afford any setback in the market.
I’ve been telling readers the same thing for years. It has nothing to do with a bull market, a bear market, nasty viruses, presidential elections or any other event. It’s a pure money management strategy.
If you’re a longer-term investor, I would ignore the news (from a financial perspective) and continue to hold on to your investments.
Could the virus spark the next recession or bear market? Sure, it’s possible. But as a long-term investor, you shouldn’t be worried about that.
Remember, you’re not concerned with the next 18 months or two years. You’re concerned with the next five to 10 years (or more).
We know that over the long term, stocks go up. The average annual return is about 10% per year.
That includes pandemics, political upheaval, wars, recessions, heart-stopping drops in the market and every other calamity you can think of that has affected the world and the markets over the past several decades.
Investors who get spooked and try to time the market typically bail out near the bottom when fear and pain are at their greatest. Then, after the market rises a lot, they get back in.
Think back to the financial crisis in 2009. Millions of investors cashed out, taking losses only to buy back in the past few years when bull market mania was at its height.
I wish I could tell you when the sell-off will end. No one can tell you that. And anyone who says they can is lying to you or to themselves.
What I can tell you is that if you’re a long-term investor, while the current environment is painful and a bit chaotic, it’s probably not different this time. It never is.
The Great Recession was supposed to be different. The factors that led to the meltdown certainly were. The market’s drop was terrible. And then it recovered, and long-term investors who held throughout the bear market continued to make money.
I’ll offer you the same advice I give to my kids, and it’s appropriate for most situations: Wash your hands often, stay hydrated and don’t panic.