How To Respond To The Coronavirus Stock Drop

Image: Shutterstock

The value of my Vanguard investment portfolio dropped by $US9,371.70 ($14,363) over the past month, with much of that loss taking place in the past week.

I didn’t panic—and if you’re in a similar situation, you probably shouldn’t either.

As Money.com reminds us, if you’re a Millennial-aged investor (like me, I’m 38), you just experienced the worst week in your entire investment history.

The stock market just posted its biggest one-week drop since 2008. That means for many millennials — who graduated college around that time — it’s the worst week their portfolios have ever weathered.

But none of these losses actually count unless you went ahead and sold your investments as soon as they plummeted downwards. Investing is a long game, and if you’re a Millennial, you’re still in the middle of it. Buy and hold is still an excellent strategy, and stocks are currently very much on sale.

But what if you’re not a Millennial? What if you’re approaching retirement age and are worried that we might be headed for a recession and that your portfolio might not rebound in time to make up whatever losses you experienced last week? Well, Money.com still recommends holding steady for as long as you can:

“If you have the proper asset allocation based on your goals and, most importantly, time frame, along with an adequate cash bucket, then the correct action is no action,” says Timothy Wyman, a certified financial planner and managing partner at The Centre for Financial Planning in Southfield, Mich.

The cash bucket, in this case, is enough money to allow you to keep the rest of your money in the market until the market begins to recover. This is where an emergency fund might come into play, if you aren’t currently earning income from another source (and if you are planning to retire or prepping for FIRE or whatever, having at least a year’s worth of uninvested cash at hand is a very smart move, so... um... start working on that in addition to all of your other financial goals, I guess).

My emergency fund/cash bucket is currently large enough to cover four months of expenses, which means that I am currently asking myself whether it’s a smarter move to put the money I’ve allocated for my brokerage account into investments or into cash. (I’m not asking myself whether I should stop maxing out my Traditional IRA, SEP IRA, or HSA accounts. Those investment vehicles offer some of the biggest tax breaks I can take for myself as a freelancer, so I’ll keep pouring money into them no matter what the market does.)

I will probably end up investing the money I’ve set aside for my brokerage account; stocks are still on sale, I’ve got a long enough time horizon to weather any uncomfortabilities, and I’m trusting my capacity to earn more money in the future even if we do end up sliding into another recession.

That said, I am not a professional investment adviser and this should not be taken as actual investing advice. So I’ll turn it around: what are you doing with your investment portfolios in response to last week’s coronavirus stock drop? Buying? Holding? Increasing your cash buckets? Doing exactly what you were doing two weeks ago?

After all, some stocks went up again today—and we’ll see what they do tomorrow.


Comments

    Shares will be "on special shortly". Just wait two days after the WHO declares a pandemic. Two days of plummeting stock prices, is as long as it will take to "price in" what we know about the virus today.

    Remember, the stock market always prices stocks we before problems are realised. So buy , stock & move your super back to the market and you might just make 10% in on week

    Buying in a falling market, really? This thing has only just started, so why anyone thinks this market drop is a one-off is beyond me. When the coronavirus shows clear signs of slowing down or stopping, then buy. But not before.

    Anyone who doesn't have a crystal clear entry and exit strategy for their investments is asking for trouble. Holding on and hoping is not a strategy.

Join the discussion!

Trending Stories Right Now