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The stock markets have been taking a huge hit this week. But what’s the cause, what’s all the fuss?
Since the coronavirus outbreak, there have been good days and bad days with markets all around the world. Some of those days are directly linked to the virus. A little while ago when it seemed like the virus was trending towards being a thing of the past there was excitement and optimism. Now that the virus is spreading around the world, fear has taken over.
It brings up the obvious question, why does the coronavirus impact my investments?
We live in a global economy. The countries we live in import and export goods with other countries all around the world. It used to be impossible to move goods large distances, but as technology and transportation evolved, so did our trading patterns. So we’ve become reliant on other countries, all around the world.
When a country like China is impacted by a deathly virus, its own economy suffers. People are unable or unwilling to go to work, people aren’t spending money, things get away from the typical healthy economy we are used to seeing.
China is a global player, meaning that a lot of countries depend in one way or another on China. It’s not tough to find a few things in your house with the ‘Made in China’ stamp on the bottom. When one country is suffering greatly, those close to it will too. And in this case, both in geography and trade. It’s unavoidably pulling down other economies with it, thus impacting the global economy.
No, not at all.
With investing, the best thing to do is to have a plan. Over the long term, the impact of a bad day, week, month or year will be almost unnoticeable. As long as you’re invested properly.
Investing too aggressively when you’re approaching a goal is asking for trouble. Know your timeline, your need for the funds you have invested and ensure you’re invested accordingly. The closer you get to a goal, the more conservatively you should be invested. And if you have an advisor, don’t just assume this is being taken care of. I’ve seen some clients in head-scratching asset allocations that didn’t suit their financial goals.
The big down swings can be unnerving and give you the sense Chicken Little’s prediction has finally come to be, the sky is falling. But not all is bad. This too will pass, in its own time.
Markets are made to go up and down, it gives us excitement and fear. But history has shown, through virus outbreaks, world wars, and market bubbles, things resume to normal. A healthy production of solid long term returns. Since the 1920’s, the S&P 500 has averaged a return of right around 10% a year. As a whole, we’ve been through worse and have lived to tell the tale.
Again, the best plan is to actually have a plan. Know what you’re working towards and the best way to get there. If it seems overwhelming or you don’t know where to start, seeking out an advisor to build a relationship with is a great first step.
Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.