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.”