As COVID-19 (more commonly known as coronavirus) continues to spread and affect communities around the world, investors have become increasingly concerned about the disease’s possible implications for global financial markets. On March 9, those concerns were apparently realized when Wall Street experienced its most dramatic plunge since the onset of the 2008 financial crisis. Though stock markets appear to be slowly but surely rebounding from Monday’s dive, investors around the world remain in a state of anxiety, confusion, and uncertainty.
According to world health professionals, we have not yet begun to see the worst of COVID-19. With that in mind, what can investors do in the present to protect - and even expand - their portfolios?
Though the instinct to sell in times of uncertainty can be strong for many of us, the atmosphere of widespread fear that’s being cultivated by the spread of COVID-19 may actually be a golden opportunity for investors. Remember the words of Warren Buffett: “Widespread fear is your friend as an investor because it serves up bargain purchases.” In plain English, that translates into the very simple (but somewhat counterintuitive) fact that investors who are able to stay calm and patient during brief, tumultuous periods in the stock market tend to be rewarded for their perseverance.
It’s also important to remember that, as always, no one knows exactly what forces are affecting the stock market. The fact that COVID-19 has utterly dominated headlines in recent weeks makes it easy to assume that as the disease progresses, stocks will continue to plummet. But the fact is, Wall Street is never completely predictable, and forces that drive down profitability one day can just as likely drive up markets the next.
With that in mind, the most important thing that investors can do as we face the possibility of a global COVID-19 epidemic is not panic. There may very well be some more bad days on Wall Street, and the media will almost certainly do everything that it can to frighten you and to make you believe that the stakes are higher than they actually are (that’s its job, after all). Don’t buy into the mania. Stay calm, stay rational, and keep your head.
It’s also important for investors to diversify their portfolios at times such as this. While it’s true that a high degree of diversity is almost always a good idea, it’s especially important during moments of financial insecurity, because it can greatly expand your risk tolerance. In moments of fragility on Wall Street, it pays to keep your eggs in multiple baskets.
As investors, the best tool that we can equip ourselves with as we prepare to navigate a financial crisis is a strong investment strategy. At Spartan Capital Intelligence, we specialize in providing personalized investment recommendations driven by AI, which can help investors to navigate even the trickiest moments of their financial careers. Follow us for more details on our upcoming launch, and discover how AI can inform your investment decisions in times of uncertainty.