Rubina Ahmed-Haq, a personal finance expert, explained that the stock market fluctuates with different political, social and economic events.
This time, it’s the new coronavirus, which has now infected more than 82,000 people globally.
“This is an event just like the financial meltdown in 2008 and 2009, or the SARS outbreak in 2003,” she said. “If you constantly follow headlines, you’re never going to be able to keep your money invested over the long term.”
Ahmed-Haq said those looking to invest in the long term, anything more than five years, should not be worried. However, anyone who needs their money back within a few months should be concerned, she said.
“Most likely you’re not going to see your investment come back in a short period of time. It can happen, but usually when markets are like this, it takes a while for them to recover.”
In that case, Ahmed-Haq said it’s wise to talk to a financial advisor — either for actual advice, or just reassurance.
Michael Allen, a portfolio manager at robo advisor company Wealthsimple, said the company has received such inquiries from concerned investors this week.
“When the market dropped on Monday, we sent out a ‘Keep Calm’ email to our clients, essentially describing what the coronavirus is and how it’s impacting the markets,” he explained.
The email, titled, “Keep Calm and Carry On: Coronavirus Edition,” read: “So far, the financial markets have reacted similarly to previous outbreaks (like SARS in 2003-2004 and H1N1 in 2009): equity prices of the sectors (like travel) and regions (China, Italy) most affected have seen the biggest declines, and so-called haven assets — gold and government bonds — have risen in value.”
It noted that while “no one knows” what is going to happen next, prices bounced back after all these previous outbreaks.
Allen explained that the bottom line is that the downturn “doesn’t impact our thoughts about where the markets is going to be five or ten years down the road.”
He noted that those who have shorter-term investment goals shouldn’t necessarily be worried, either.
Wealthsimple, like other robo advisor companies, asks would-be investors to answer an online questionnaire about things like financial goals, timelines, and how much risk they want to take when they set up an account.
“We handle the risk tolerance when the account is set up,” Allen explained.
Ahmed-Haq noted that amid tense situations, some consumers may find it easier to have in-person conversations, which some robo advisors do not offer.
“When markets are low, human beings want to call someone, and that’s where those financial advisors win. If you’re investing with a financial advisor, you’re paying those higher fees, you can call them and be like, ‘What’s going on? What can I do?'”
However, Allen said it’s a “common misconception” that robo advisors lack human connection.
“There’s is very much a human element to it,” he said, nothing that they provide phone calls with advisors, and communicate over text message and email.
While the market’s response to the outbreak may not warrant action or panic, Ahmed-Haq noted it may be a good time for reflection.
“When markets are doing really well, it’s easy to say, ‘I’m a risk-taker,'” she said. “Now that we’re in a time where the market is lower, you may be realizing that really I can’t manage, it’s not the personality I have.”
In that case, Ahmed-Haq said it may be a good time to consider industries that are less volatile and pick stocks that are less affected by global affairs.View link »