Let’s talk about last week. Unless you were living under a rock, which in hindsight might not have been a bad idea, you couldn’t help but notice that North American stock markets suffered their worst week of losses since the financial crisis. Global economic fears triggered by the outbreak of coronavirus disease (COVID-19) caused the S&P 500 to fall 11.5 percent, while Canada’s TSX dropped 8.9 percent this week.
My own RRSP shed $15,000 – or 8.18 percent. Fear and speculation was rampant in the media, with several pundits predicting further losses and that the worst is yet to come. On the other side we had the ‘buying opportunity’ crowd. You know, the ones who endlessly crow about stocks being on sale and going bargain hunting. So annoying.
Then there’s me, sitting here with no bonds to sell and no unused RRSP contribution room. Sad.
A market sell-off of this magnitude has a real psychological effect on investors, no matter their age and stage. Retirees, or soon-to-be retirees, are undoubtedly concerned when their nest-egg takes a 10 or 15 per cent hit. Investors still in the accumulation stage might be re-thinking their investment strategy as they watch their portfolio decline in value.
Let me remind you that a 10-15 per cent correction is well within the normal distribution of returns. It happened in late 2018, and in August 2015, and again in August 2011. This is not new, so ignore any headlines that claim to say ‘this time is different.’
Coronavirus and the Markets
So what’s an investor to do? This is a good time to remind investors that the money invested in their portfolios should have a time horizon greater than 3-5 years (ideally 10+).
It’s a good time to remind investors that their asset allocation should reflect their actual risk tolerance, not just their perceived tolerance when markets are performing well.
Finally, it’s a good time to remind investors that timing the market is incredibly difficult and so the best course of action in these volatile times is to stay the course and stick to your plan.
What that means is tuning out both the bearish pundits and the annoying ‘stocks are on sale’ investors. I say that about the latter because normal investors can get a serious case of FOMO [Fear of Missing Out] or just feel plain dumb if they don’t have a sensible way to add to their investments during this sell-off.
Let me be the first to tell you that it’s perfectly okay to stick to your regular contribution schedule, or to not contribute at all (just stay invested). All of the great buying opportunities in history come at times when few investors are truly in a place or frame of mind to double down on their stock investments. You’re not missing out.
Here’s some perspective to consider. North American markets have basically retreated to October 2019 valuations. Ask yourself how you felt about your portfolio in October of last year? Probably pretty darn good.
Now ask yourself if markets were completely flat for four months between October and February would you still feel this sense of fear and dread? Likely not. After all, investors have been fortunate to participate in 10+ years of nearly uninterrupted gains. You’d forgive the markets for going sideways for a few months.
Instead, we got a steady climb of investment gains for four months, followed by a fast and furious tumble in the past week or so. That’s just the markets doing what they do.
It’s also another good time for a reminder of an age-old fallacy: the idea that investors can get out of the market and wait for things to settle down. When exactly have markets been calm and consistent? How about never.
Now for some more advice and perspective on investing, market corrections, and avoiding emotional panic selling.
- Ben Carlson for Fortune Magazine on resisting the urge to panic.
- Ben Carlson again in the A Wealth of Common Sense blog on the art of not panicking.
- The Humble Dollar’s Jonathan Clements telling us not to lose it.
- Servo Wealth Management on avoiding an irrational response to irrational markets.
Coronavirus and Travel
A more pressing concern, at least for me and my family, is how the coronavirus affects travel plans. More specifically, we’ve planned a trip to Italy in April, a country that has reported the largest number of coronavirus cases and deaths in Europe.
While areas such as Rome and Florence, which are on our itinerary, have not been affected, we planned to stay in Venice for three nights to cap off our trip. Areas and towns in Northern Italy have been placed under quarantine, which has caused heightened security alerts for anyone travelling to the region.
We’ve been closely following the Government of Canada’s official travel advisory notice board, which says to take normal security precautions when travelling to Italy. However, there is a heightened advisory (level 2) for northern Italy, which tells travellers to exercise a high degree of caution when travelling in northern Italy due to the spread of a novel coronavirus disease (COVID-19).
For now we have no plans to cancel or alter our trip. All indications on the ground in Italy is that it’s safe to travel and live in Italy, with just 0.05 per cent of the country being affected by “extraordinary measures of temporary isolation of some Italian cities.”
To be clear, we’re not concerned about contracting the virus when we travel to Italy. Of greater concern is how airlines and other countries will react to passengers and tourists going to Italy and returning from Italy.
We have flights on United Airlines (Calgary to Rome via Newark), and returning flights on Lufthansa (Venice to Calgary via Frankfurt). That means closely monitoring not only Travel Canada advisories, but also U.S. advisories, German advisories, Italian advisories, as well as watching for news from United Airlines and Lufthansa.
A lot can change either way in six to eight weeks, so for now we’re planning to travel but we’ll wait and see what happens.
In addition to running the Boomer & Echo website, Robb Engen is a fee-only financial planner. This article originally ran on his site on Feb. 29, 2020 and is republished here with his permission.
