Christine Benz of Morningstar. Christine Benz of Morningstar.

In the midst of the worst market drop in 10 years, Morningstar director of personal finance Christine Benz took a moment to discuss the coronavirus, the stock market plunge and what investors should do, with Morningstar’s Susan Dziubinski. Here are some highlights:

1. Market volatility may outlast the disease outbreak.

Benz acknowledges how China, ground zero of the coronavirus, has shown the country’s force in a global economy. “China’s fortunes are very much tied to the rest of the world, so that is a near-term worry,” she noted. However, she added, other factors feed into this stock market reaction: the Democratic nominee question and potential change in the balance of power in Congress.

In addition, the stock market was highly overvalued, and “during periods of not-cheap equity evaluations, equities tend to be more sensitive to external events, like [the] coronavirus, and they can’t just shake them off. I would expect the volatility to, not necessarily be persistent but will be something that could be with us for a while.”

2. It was bound to happen.

As Benz noted, “We’ve come through an extraordinarily tranquil period. Stocks have performed so well for so long, and bonds haven’t been bad either. So, it was bound to happen.”

3. Volatility is harder on older investors.

The market has been volatile before; the difference is “proximity to needing to spend your money.” Therefore, retirees, or those near retirement, should be most concerned, and she recommends those investors have a good portion in cash and bonds to “tide them over,” in times like these, she said.

Younger investors should not be as concerned; however, they may have other spending goals. In that case she recommended, “for that part of the portfolio that they expect to spend within the next couple of years or even in the next 10 years, I would de-risk that portion of the portfolio.”

4. Don’t worry about yields so much.

Cash and bonds aren’t exactly providing high investment impact, but Benz believes investors shouldn’t focus on that, “because yield or income isn’t really the main reason that [they’re] owning bonds in this case. [They’re] owning them for their diversifying potential, their ability to hold their ground, maintain stability in periods when equity holdings take a dive,” she said.

She also believes there should be a “readjustment of expectations.” Unfortunately, “that doesn’t portend great returns for bond investors or cash investors over the next decade, but if [they’re] thinking of those holdings as the shock absorbers of [their] portfolio — the money that will stay safe even as [their] equities are undergoing volatility — bonds serve that role really well,” she said.

5. Do a checkup on dividend-yielding stocks.

Retirees who pay expenses using dividends from their stocks should check on their stability, noted Benz. “…Even though dividend-paying stocks have had a history of holding up better than the broad market in periods of turbulence, nonetheless, they’ll feel it when the market is falling. So, just do a little checkup.”

6. The young should embrace volatility.

Unlike those near or in retirement, younger investors should embrace volatility and take advantage of dollar-cost averaging programs “so [they’re] not really overthinking these market ups and downs,” she said. Also, they should be in an “age-appropriate” investment mix. She likes target-date vehicles, which usually are equity-heavy, for younger investors.

— Related on ThinkAdvisor: