Modernist Portfolios and Recent Market Volatility

Hello Friends and fellow investors,

As investors, it is essential that we work to clear the noise of media (financial or otherwise).

While we don’t know how many people the coronavirus will infect, the length of this viral cycle, or what influence it will ultimately have on the economy, we do know you may have some questions about how this might impact your portfolio.

The news is full of articles about recent outbreaks of the novel coronavirus (a.k.a., COVID-19) outside of China which is understandably raising concerns about the virus’ containment. This has sent global stocks quickly lower as investors attempt to assess the impact of the virus on the global economy.

So how should you respond? Here are a couple of investment themes to keep in mind as a long-term investor.

First, resist the urge to take action. News stories about the virus can be downright scary, but we need to remember that we don’t know the future, so any action would be a guess, and any positive result would be luck. Market prices react immediately to both good and bad information. To attempt to make money or avoid losses, we would need to trade before it became news. And, of course, no one can predict the future.

Second, historical perspective is key.

This isn’t the first new virus we’ve seen, and this won’t be the last. SARS, Zika, H1N1 and others have all come and gone. While the concerns at the time were the same (e.g., How quickly will it spread? Will there be a cure? Will it slow down the global economy? Will it impact my investments?), both society and markets have overcome past viruses.

In fact, markets have short memories regarding epidemics. Markets may initially react to the uncertainty and fear that comes with a new concern, but, for the most part, viruses get contained and investors return to corporate and economic fundamentals. We can see this pattern in the table (right).

Market returns generally have been up in the six and 12-month periods following the outbreak of a virus or disease. While this is a small sample set, we know that keeping focused on the long-term helps us keep a level head during all kinds of storms.

Finally, a couple observations about the virus.

One statistic we haven’t heard much about is the number of people who have recovered from the virus. According to information tracked by John Hopkins University, over 30,300 people have fully recovered from the virus. While it does have a slightly higher mortality rate than some of the more recent viruses, catching it doesn’t mean death. The odds are much much higher that our immune systems will fight it off.

Also, while the number of infected people outside of China has grown, the overall number of people contracting it appears to be on the decline. This suggests that containment measures and safety precautions may be working to limit the spread.

Modernist’s advice remains the same: stick to your long-term plan and tune out the noise. We invest clients in a way that isn’t dependent on lucky guesses or fear-based decision making.  We use investment strategies and prepare financial plans that assume events like these will come and go. So, please, stay positive, resist checking the news more than necessary, and keep focused on your family and your health. If the virus is a compelling thought, focus on sending positive healing thoughts to those infected.

If you have any questions about your investments, need to inform us of family or work-related changes, or want to discuss your financial plan, please reach out. We’ve got your back!

Best,

Georgia & Team Modernist

P.S. Our fav money writer, Ron Lieber of the New York Times, backs us up with a reminder to ignore predictions and seek perspective in his fresh article “Freaked Out by the Stock Market? Take a Deep Breath.”