Advising clients with coronavirus portfolio anxiety

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(This story was originally published on Feb. 6. It has been updated)

I must admit to a moment of weary resignation when I walked into my office Monday and saw a queue of coronavirus-related emails in my inbox.

“Here we go again,” I thought, replaying memories of the SARS outbreak in 2002, the MERS outbreak in 2012 and other international health incidents that had spurred similar waves of client anxiety based on short-term market fluctuations.

Some of my newer clients asked, “What are we going to do to protect [my] portfolio against the coronavirus?” And, “What happens if the Chinese market tanks; will my portfolio be OK?” Another asked if any of my clients had recently returned from China. (The answer is no.)

While each death is a tragedy, history shows us that worldwide health organizations and researchers have proven resilient and resourceful in their application of science to these crises. Still, we cannot be sure how far the outbreak will spread, how long it will last and when or if a cure will be found.

But when it comes to the world financial markets, we’re on firmer ground.

Over the last 20 years they have weathered SARS, MERS, swine flu, bird flu and the H1N1 pandemic and kept right on doing a robust job of pricing investments and creating wealth. History also tells us that the financial markets have managed to continue functioning efficiently and profitably for the long term. In the case of most of the outbreaks listed above, the indexes plunged on fears of the effects of the disease.

In January 2002, prior to the SARS outbreak, the Dow stood near 14,000, the S&P 500 at 1,140, and NASDAQ registered 2,806. Yet today, the Dow is well over 28,000, the S&P 500 north of 3,200 and the NASDAQ approaching 9,300. On average, 12 months after an outbreak stock prices were up 9.9%, in line with the historic yearly performance of the U.S. market.

And as I write this Wednesday afternoon, the NASDAQ has erased Friday’s losses. I also note, as I write this, that Chinese markets are rallying on a $71 billion liquidity injection from the Chinese central bank.

These are the facts I reminded my clients of as I talked, emailed, and texted with them Monday. I also told them what I know to be true: that they should never make investment decisions of any kind on the basis of an emotional reaction to headlines. As trusted advisors, we need to instead encourage them to focus on what they can control: proper diversification, disciplined rebalancing and commitment to a long-term strategy.

If If we could get them to stop clicking on all those scary-sounding headlines, that would be great, too.

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