How should investors respond to coronavirus?

Published on: March 4th, 2020

The impact of the COVID-19 strain of the coronavirus, which first emerged in December last year, is being felt across the globe and as we move towards a potential declaration of a pandemic, the impact is only likely to increase. The primary concern is, of course, for our health but with most sectors declining across financial markets, many of us are also thinking about our finances.

Markets have seen increased volatility, with Wall Street experiencing the biggest weekly decline since the GFC. Many industries are feeling the impact, and many more are predicted to as the situation unfolds.

Currently, we are seeing the biggest hits to industries that are directly related to tourism, from airlines and airports to hotels and restaurants. Retail is also being impacted, particularly as the Chinese economy is the largest consumer. We may see an impact across wholesale too, as exports and imports are restricted and manufacturing output is reduced across China.

With a situation as devastating as this one, it can be hard to know how to respond. We are seeing lots of reactionary responses across many areas of life, including investments. It’s important that you take a measured approach to any investment decision and avoid panicking, as this can lead to making the wrong move and potentially putting your financial future at risk.

A long-term approach should ride downturns

Your investment approach should be long term and designed so that you can ride out any downturns – including this one. While it can seem like the right response is to sell off your portfolio and turn it into cash, you may do so at a loss and with the cash rate currently so low, it could be hard to get your money working for you.

We’ve seen how epidemics and pandemics impact economies before; most memorably with the outbreak of Severe Acute Respiratory Syndrome (SARS), another strain of the coronavirus, in 2002, so we do have some historical data to look to.

With SARS, the S&P/ASX200 experienced a decline over a six-week period but began to recover before a decline in new cases. It’s true that every situation is different, but it is important to think about your long-term goals and the chances of a market recovery before reacting.

Government responses may stabilise markets

Today, the Reserve Bank of Australia (RBA) cut interest rates in a bid to protect the Australian economy from further fallout, and we should see more government responses to market movements in the coming weeks, which may alleviate some of the pressure.

Markets in the US responded positively overnight, as expectations grow that Central Banks will intervene, and this should see some market stabilisation across the globe.

Seek expert advice as soon as possible

If you have a financial adviser, it’s important you speak to them before making any financial moves. It’s in this type of environment where their role really comes to the fore. They understand your long and short-term goals and will have been planning for these types of scenarios already, so they are best placed to explain any impact and discuss the best options and opportunities for you personally.

If you don’t have an adviser, it’s worth engaging one now. A good adviser will work closely with you to understand what you want to achieve and make sure you don’t make any moves today that might jeopardise your bigger picture.


General Advice warning

The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.