Erin McCloskey, CFP®, EA
The S&P in past viral outbreaks
Updated: Feb 26, 2021
Hello! I am in my tax season, and I am so thankful the IRS filing deadline is extended. I thought I would share this presentation made by my broker-dealer, Cetera Financial Specialists. It helps me to keep things in perspective. This is a chart of the S&P 500 (stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States), from Jan 2000 through the end of 2019. Instances of past viral outbreaks are labeled on the chart.
As I am writing this, in early April 2020, the S&P is about 2500. We have yet to see the effects of this current virus as it is still ravaging the globe, and whether the assistance from the government will help us make it to the other side.
Here is some analysis of the change (return) in the S&P over short periods of time after a viral outbreak. Stocks traded higher on average 12 months later.
What are your options?
You may have seen a drop in your investments recently, but should you be worried? The first question to ask yourself is, do I need this asset now or can I leave it to grow? If your time horizon to use this money is many years away, then you have plenty of time for it to recover and grow. You only realize any losses if you sell the stocks or shares that you own. If you cash out the shares, you will probably miss when the market begins to gain. It is very risky to "time the market"; rather, make prudent choices that reflect your long-term goals.
I think this is a fantastic opportunity for investors. It is a chance to buy shares of companies "on sale", and also a great time to review your investments and see if you have wide diversity in your portfolio. Are most of your assets invested in a few share classes (like for example, large US tech companies), or do you have investments in everything from small startups to global giants, and in companies around the world?
Having a very diverse portfolio helps protect you from risk. For example, it is possible that with Asian countries being hit first with this latest virus, they will recover economically sooner than the US, and that would be reflected in the share values you own.
Stay safe, stay calm and let's keep a positive outlook and remember that volatility may be here to stay, but it does not need to shake our long-term goals.