The Coronavirus and your money

Stocks have taken a beating over the last week. It is shaping to be the worst week since the 2008 financial crisis as far as Wall Street is concerned. Coronavirus worries have left ordinary people and Wall Street traders wondering about safe haven stocks that they can hide behind. Speculative stocks like Tesla and Virgin Galactic have borne the biggest brunt of these losses.

So then what is supposed to be our game plan through this seemingly significant financial market correction? Honestly, the biggest thing that should be driving this decision is the utility of that money to you and when you plan on needing cash.

1. If you are retired – Hopefully, you already have things figured out and set yourself up so these corrections don’t bother and impact you too much but if you still have too much exposure to stocks, you might want to lower that and move to safer investments like bonds. Whatever you do, DO NOT go chasing after stocks that you think will benefit from this pandemic. You are just throwing good money after bad at that point and you are not in a situation where you can recover from too many bad choices.
2. If you are in your 50’s and 60’s – If you are in this age group, this downturn should not be affecting you as badly since some or most of your stocks should be in safer, more stable investments like bonds anyway. However, if you were heavily invested in stocks and are getting hit pretty bad, you need to evaluate your investments more closely and figure out how material the impact of this correction could be for your portfolio long term. For example, Airlines (especially international ones) will likely be affected significantly and for a longer duration of time. Same with cruise companies. Also any other companies that have relied heavily on China for their growth and have higher valuations on the speculation of this growth. If you are invested in such stocks, it might be a good idea to transition this money into somewhat stable investments and more importantly take the lesson to heart. As you grow older, too much exposure to speculative stocks (and stocks in general) could be a bad thing.
3. If you are in your 30’s or 40’s – You likely have some retirement savings to play with and the 2008 crisis probably didn’t impact your portfolio materially enough (because you probably didn’t have as much in savings then) for this situation feel familiar. However, we all know what has happened since 2008. Stocks have bounced back strongly and we all hope we had bought in as much as possible back then. History suggests that the same will happen again as long as we are willing to be patient and give it enough time. The US financial engine works and will continue to work. If you are in your 30’s and 40’s, you have enough time for things to recover so you should look at this correction as stocks being on sale. The S&P 500 is currently offering a 10% – 12% off sale and you should be buying if you’re not going to be needing to withdraw cash any time soon.
4. If you are in your 20’s – You should be pinching every penny at the moment to buy these discounted stocks. Diversify and Buy should be the motto of your life. NO need to look at bonds. While real estate could also be a good investment, you need a decent amount of cash to be able to start. Instead, I recommend creating a safety net of an emergency savings fund (most experts recommend 3-6 months of living expenses) in a money market account and put everything else into an S&P 500 ETF (Exchange Traded Fund) like VOO or SPY if you aren’t the stock picking type (which most of us aren’t). Leave the money there and keep adding to it as much as you can. Max out your 401k contributions if you can and pick stock funds with low expense ratios and exposure to quality stocks. Most brokerages do not even charge trading fees any more which means you can literally save $270 and buy a single unit of VOO, which means you are buying  $270 sliver of 500 of the largest companies in the US. Where do you get that kind of diversified ownership for that little? That is the magic of ETFs.

Unless you believe that the fundamentals of capitalism do not work, acting emotionally could hurt you.