Please note: This article is accurate at the time of publication (stated above). But with the situation around coronavirus changing frequently, you may not see the most up-to-date information in the text below. To receive the latest updates around COVID-19, please visit the World Health Organization’s (WHO) website and the Government of Canada’s COVID-19 page.
It’s not easy – physically and mentally – to go through a pandemic like the latest coronavirus or COVID-19. And, it’s emotionally straining to see your investment portfolio or savings plan go down in the short term.
COVID-19 has brought a lot of uncertainties in our lives. Along with being a global health issue, COVID-19 has also driven market volatility.*
(*Market volatility refers to dramatic swings or ups and downs in the markets.)
But if your long-term savings goals haven’t changed, it pays to stay the course. Here’s why.
Markets have a history of bouncing back
Many different events have sparked volatility in the past. But, when we look at history, how these events play out in the long term is often similar. Currently, the coronavirus is causing a lot of economic disruption.
Looking back on the H1N1 pandemic in 2009 and SARS in 2003,1 both caused relatively short-term impact to growth. The deciding factors in our current situation will likely be how long COVID-19 disrupts economies and how governments respond.
Sources: Centre for Disease Control; World Health Organization; Bloomberg. Data as of March 4, 2020.
Historically,2 the market has recovered from downturns and produced gains. And, those who stay invested have realized these gains over the long term.
Sources: Centre for Disease Control; World Health Organization; Bloomberg. Data as of March 16, 2020.
What happens if you sell when the markets are down?
If you sell in a panic when the market is down, you may miss out, by:
- locking in a loss from selling at low value and
- likely missing the market rebound.
Just like it’s impossible to predict a downturn, it’s equally difficult to know when the market will rally. The most likely result of selling after a downturn is missing some of the best gains during a recovery.
Let’s look at an example of a $10,000 investment on January 1, 1985.3
Global stock market represented by MSCI World Source: Morningstar.
See how missing just the 5 best days, over 35 years, means a return of $32,000 less than if you just left your money invested? In a worst-case scenario, missing the best 50 days means you end up losing money on your initial investment.
What can you do now to keep your financial goals on track?
- your financial situation,
- your risk tolerance and
- the plans you laid out with your advisor.
Look at your personal financial situation. Start by asking yourself these questions:
- Has my financial situation or savings goals changed?
- When do I need to use my investments?
- Do I need access to the money I’ve saved up now or later?
If you have time on your side, then you may be better off staying the course and sticking to your original plan. Remember, history tells us that markets grow over the long term. Plus, making emotionally charged decisions may compromise your goals.
Know your risk tolerance and consult your advisor. Next, think about how comfortable you are with risk. Does seeing a potentially short-term drop in your investment value cause you anxiety? If so, talking to a professional might help.
This is a good time to reach out to your advisor if you have one, or to find an advisor if you don’t. With more people in self-isolation or in quarantine due to the pandemic, many advisors are now providing consultations by phone or video chat.
When large market forces are at play, it’s normal to want to do something to take control of the situation. But history tells us that the best thing to do when you have invested with a diversified portfolio is to stay the course.
So depending on your current financial situation amid coronavirus outbreaks, you may be better off by:
- staying invested,
- sticking to your long-term plan and
- focusing on your health and the health of the people around you.
Ultimately, your most important asset is your health. So try to stay safe and healthy amid these uncertain times.
What if you're not sure what to do?
If you're feeling nervous or uncertain, now might be a good time to talk to your financial advisor. Your financial well-being is your advisors' top priority. They have the experience and expertise to guide you through difficult times.
Need help? Talk with an advisor.
If you’re not already, consider working with an advisor. Sun Life Financial advisors look at your specific needs to help you develop a personalized plan. An advisor can help you:
- make well-informed decisions,
- understand what your risk tolerance is,
- make a plan and build an investment portfolio that meets your long-term goals,
- feel assured in times of uncertainty, knowing you’ve taken steps to prepare, and
- avoid making emotionally-driven decisions about your savings.
1Source: Centre for Disease Control; World Health Organization; Bloomberg. Date as of March 4, 2020.
2Sources: Centre for Disease Control; World Health Organization; Bloomberg. Data as of March 16, 2020.
3Global stock market represented by MSCI World Source: Morningstar.
These images are for illustrative purposes only and are not intended to be representative of the performance of any actual or future investment available to investors. Please note that these illustrated graphs do not guarantee that this COVID-19 event will experience the same market fluctuations as previous events. It’s also important to note that returns are calculated in Canadian dollars and assume reinvestment of all income and no transaction costs or taxes for the period January 1, 1985 to December 31, 2019. Actual client returns would be different due to fees and expenses associated with investing.
This article is for information and illustrative purposes only. It’s not intended to provide specific financial, tax, insurance, investment, legal or accounting advice. And, it does not constitute a specific offer to buy and/or sell securities. We’ve compiled information in this article from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to its timeliness or accuracy.
© Sun Life Assurance Company of Canada, 2020