Key Takeaways

  • The impact of the coronavirus (COVID-19) on financial markets has many investors worried about the short- and long-term impact on their assets.
  • While the full economic impact of the virus remains unknown, we can learn from past market performance.
  • Asset allocation and portfolio rebalancing provide a strong alternative to leaving equity markets for the perceived safety of cash.

By Rob Clarfeld | Executive Chairman, Clarfeld | Citizens Private Wealth

The historic market plunge of the last week and reports of the spread of the coronavirus (COVID-19) have left a wake of great uncertainty as well as pressing questions and concerns around the world. What will be the range and duration of this outbreak? How will it impact health and safety in our own homes?

Investors, of course, face a myriad of additional concerns, most notably: How will the outbreak impact the short- and long-term health of the financial markets — and our assets?

Accompanying these questions and concerns is news hype and prognostications from experts who have attempted to provide answers. However, there is only one thing any of us know with absolute certainty: The coronavirus is real and its full impact on the markets and our own financial health will not be felt until the virus has long passed.

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It's a basic investing principle that past performance can never be an indicator of future success; that said, there’s much that can be learned from the history of the financial markets. Though financial markets have faced many periods of market volatility, they’ve been resilient, recovering from all declines … at some point. Whether the coronavirus crisis follows suit remains yet another unknown.

What I can draw on are some basic truths of investing I’ve learned in managing investments for both myself and my clients over the years: It’s prudent to rebalance declining assets and adjust asset allocations to reduce risk and manage changing financial goals and life circumstances.

Going into cash out of fear, with the intention of coming back into equities at better valuations isn't a strategy — it's the definition of market timing, which rarely works out well.

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Although the full impact of the coronavirus is uncertain, the tenet of prudent investing has not changed. It requires discipline to avoid knee-jerk responses to the latest headlines and adverse market conditions and confidence that the markets will recover in time. And while many questions need to be answered with the coronavirus crisis, patience and sound asset allocation may very well be your most prudent response.

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For up-to-date news on coronavirus topics, including health & safety and travel, visit the Centers for Disease Control and Prevention's website.