No doubt we've seen some real volatility the first two days of the week. The coronavirus creates a great deal of unknown and unknown often results in volatility.
During periods of short-term volatility like this, we are often going to feel our fair share of it in our Super-Diversified Portfolios. It’s not pleasant but simply a given for investors…there’s just no avoiding it.
Although we will feel the impact of short-term volatility even with a Super-Diversified portfolio, if this short-term volatility turns into a longer-term and deeper decline / bear market, this is exactly why we Super-Diversify. We do generally expect to lose money in a bear market, again nearly impossible to avoid when seeking good long-term returns, but we expect to lose meaningfully less money than the stock market alone.
What Comes Next?
There is no way to know. As far as the coronavirus is concerned, it seems to be anybody’s guess as to how bad it may get (assuming it gets worse). Even if we did know, it would be impossible to then predict how the markets will react.
During these first two days of the week the S&P 500 has fallen by -6.3%. This doesn't happen frequently but it's not entirely uncommon happening 14 other times (a drop of -5% or more) since the current bull market began in early 2009. The good news is that one month FOLLOWING these two-day selloffs the market has been higher 13 out of 14 times by an average of +6.8%. The one time the market was lower a month later was only a loss of -1.4%.
Does this mean the market will be higher in a month from now? Again, it’s impossible to know but history seems to put the odds in our favor.
I’ll never tell you to “get out”. I simply don’t believe this is a good long-term investment strategy. I know some investors are hoping I’ll suggest getting out because it seems as if it may reduce some anxiety that often accompanies market volatility. The fact though is that such a move more often causes more anxiety as the market, more often than not, turns around and goes higher. Sitting on the sidelines when the market is rising is tough.
Staying the course has been a proven investment success…over and over again.