4 common questions investors are asking during the COVID-19 pandemic
Originally published March 17, 2020
The uncertainty around COVID-19 is something that unites all of us, and while the full impact of the virus on global markets can’t be predicted, we've prepared the best advice TD has to offer in response to common questions investors are asking our wealth and financial planners right now. While this information is meant as general advice during unpredictable times, we do stress that investors consult with their advisor for more specific advice that is aligned with an individual’s long-term investment goals.
What does the virus mean for global financial markets?
No question that the timing of this pandemic is serious given already heightened concerns about a global economic slowdown. Europe was already on the cusp of a recession when events began unfolding, and Japan's economy suffered before factoring in the potential impact of the COVID-19. While there will continue to be some loss of activity, once the virus levels off, subsequent quarters would see economic rebounds as business operations and consumer activity normalizes. If we look at other events like SARS and MERS, for example, the impact of COVID-19 could dissipate within two quarters. And while the full impact of the virus on financial markets is impossible to predict, investors do have options.
Shall I stay invested?
The short answer is yes. Trying to protect yourself by attempting to predict the ups and downs of the market (and moving in and out of them) could mean missing out on long-term growth. The best days for investment growth often come after the worst. History has previously shown that after bear markets, Canadian equities recovered and resumed their upward trend. That’s why staying focussed on long-term investment goals is important as those who sell during a bear market could miss out on more significant returns during a recovery period. Investors wanting to build longer-term wealth should consider investing with a view beyond the immediate discomfort of current events affecting global markets.
What is the difference between risk and uncertainty?
Where things like the U.S. election, trade disputes, a possible recession and geopolitics were ‘identifiable risks’ at the beginning of 2020, unpredictable events such as the COVID-19 are impossible to quantify and a good example of uncertainty. For situations that fall under the ‘uncertainty’ category (such as the COVID-19), however, we’ve built resilient portfolios that take advantage of our true diversification approach. This means combining asset allocation, factoring in diversification across asset classes, geographies, risk factors and macroeconomic environments, along with behavioural finance considerations.
While the market volatility over the past two weeks has been difficult, our advice is to speak with your advisor about whether a more diversified portfolio that is not overexposed to adverse events (and one that is prepared for the risks and uncertainties currently impacting global financial markets), is a desirable option at this time.
What’s your best piece of advice for investors?
Do not lose sight of long-term goals and stay invested. Speak with your advisor at your earliest convenience to discuss options and concerns, or to learn more about behavioural finance and how it impacts the decision-making of investors during unpredictable times. This is good advice beyond what’s currently happening with COVID-19 and applies anytime an investor faces a change in their finances or a major life event.
DISCLAIMER: This content discusses current topics of interest in a general and informational manner only and may not be appropriate in all circumstances. Please ensure that you seek advice personalized for your situation from the appropriate professional, consultant or subject matter expert on the topic of interest to you.
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