You may have been reading the headlines around recent stock market declines or the emergence of the coronavirus (COVID-19). We have been following the situation closely and as Chief Investment Officer of ForUsAll, I wanted to share our thoughts and perspective.
Coronavirus and Market Events
The coronavirus was detected in Wuhan City, China in late 2019. Since then, the virus has spread to 37 countries around the world, most recently with outbreaks in Italy, Iran, South Korea, Germany and the U.S., to name a few. The Centers for Disease Control and Prevention (CDC) remains hopeful that the spread can be slowed, but they have recommended planning for disruption.
It's important to put current events in historical context. Two similar but different virus outbreaks were SARS (2003) and MERS (2012), both of which had significantly higher fatality rates, but much slower rates of contagion. In those cases, social responses such as restrictions on travel, temporary stops in manufacturing, production & distribution and social distancing had temporary impacts on GDP and corporate earnings growth. An important difference today is that China's economy is now the second largest in the world, at roughly 20% of world GDP, as opposed to roughly 5% and 15% in 2003 and 2012, respectively.
In the last few days, we've observed market volatility nearly double, with significant declines in the stock market. In times like this, it can be very tempting to want to sell stocks and move into cash. However, historically, trying to time the market has often resulted in investors locking in their losses and missing the rebound. For context, after SARS and MERS, the market rebounds were 20+% and 8+%, respectively, over the 12-month period following the end of the market decline. Moreover, market rebounds are often concentrated in a small number of very positive trading days, making it very hard to time exactly when to get back into the market. For example, one analysis found that missing the five best trading days in the market decreases overall return, by up to 35%. Knowing exactly when those five days will happen requires a crystal ball.
As hard as it may be, we strongly recommend that investors remember that their time horizon is typically quite long and that, historically, there has never been a time that the US stock market has failed to rebound. We believe the most important thing to do is stay diversified at an appropriate risk level, which can be accomplished automatically with the age-appropriate target date funds.
At ForUsAll, we care about your retirement. We are here to help you and we encourage you to reach out to Participant Advisory team with any questions at email@example.com or call us at 1-844-401-2253.