3 Things You Should Do Today To Vaccinate Your Investments Against Coronavirus
The S&P 500 dropped 1.77% today and 2.1% over the past 5 days. The selloff was fueled by investor fears of Coronavirus controlling the global stock market rather than fundamentals and earnings driving stock prices.
So, what should you do with your personal portfolio? The answers may surprise you.
Here are 3 things investors should do today:
1: Do Nothing
When investor sentiment and fear drive the markets, corrections are typically short-lived. What fundamentally drives stock prices over the long-term is earnings, not fear/greed. Despite recent strong earning reports being released from a number of mega-cap companies such as Amazon, Apple, and Tesla, the broader global market is trading on sentiment and uncertainty. The famous quote from Sir John Templeton is quite applicable today: “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” When skepticism starts to creep back into the media, at the water cooler and at weekend cocktail parties, there is typically more room for the bull to continue to run. If an investor’s time horizon is still 20 or 30+ years out, they should remain prudent to their long-term investment strategy and do nothing during short-term spouts of downside volatility.
2: Harvest Short-Term Tax Losses
Market pullbacks can actually be a good tool for capturing tax losses in a portfolio. If an investor has held stock positions for less than a year and they have lost money since the purchase (aka in the red), they can sell out of those positions, use those losses to offset income and then re-allocate capital into a different security to maintain market exposure. This concept is called tax-loss harvesting and merits an entire session on the benefits it provides all investors.
3: Revisit Your Long-Term Strategy
If market volatility is causing you to increasingly look at the value of your investment portfolio throughout the day and/or keeping you up at night, this could be a good chance to revisit your long-term investment strategy. Is it possible that the level of risk you are taking in your portfolio is no longer appropriate for your goals and objectives? Although the gains in the S&P 500 have essentially been wiped out YTD, other asset classes such as the 20+ Year US Treasury Bond ETF (TLT) is trading up 6.7% YTD. This is a classic short-term example of how asset class diversification is your friend. Other asset classes such as real estate, private equity, cryptocurrency, hedge funds, and venture capital can also provide additional levels of portfolio diversification.
At the end of the day, short-term market volatility is normal and healthy. At Old Vine Capital, our investment philosophy is: “Focus on what you can control. You cannot control daily market volatility, you cannot control geopolitical events or macro-economics, but you can control your future by building an effective financial plan, prudently saving, and investing wisely.”