I can’t speak about COVID-19 from a health and safety standpoint, but I can offer up this understanding of it from a market perspective. We are experiencing a “systematic risk” right now. Risks in the stock market can be split into systematic and unsystematic risks. In short, systematic risks are out of anyone’s control, while unsystematic risks are controllable.
A guiding investment approach is to control what we can control – those unsystematic risks: cost, portfolio exposure and allocation, time in the market, and staying the course as a disciplined investor during good and bad times. We cannot control systematic risks; systematic risks are unpredictable and nearly impossible to completely avoid, too. Common examples of systematic risks are interest rates, taxes, inflation, and the overall health of the economy. A more acute example of this is COVID-19. It remains to be seen if our response to COVID-19 is appropriately proactive or an overreaction. Regardless of the correct response, we have and will see an impact at the global economic level, and we have and will see an impact at our personal portfolio level, too.
As we come out of this and we look back, we’ll see the global economy will have slowed, just like our portfolios, but similarly – at some point – the global economy will rebound, and our portfolios will rebound, too. We will continue to control and mitigate unsystematic risks; systematic risks will always be present, and they will always be impactful. How we respond is paramount (both in an overall sense, and at our portfolio level). We can’t panic, this might get worse before it gets better, and we must look for opportunities to inject money into stocks while markets are down, and things have slowed. The US market has fully recovered from every historical market panic, and this time will be no different. In time, our resolve will reward us.
A guiding investment approach is to control what we can control – those unsystematic risks: cost, portfolio exposure and allocation, time in the market, and staying the course as a disciplined investor during good and bad times. We cannot control systematic risks; systematic risks are unpredictable and nearly impossible to completely avoid, too. Common examples of systematic risks are interest rates, taxes, inflation, and the overall health of the economy. A more acute example of this is COVID-19. It remains to be seen if our response to COVID-19 is appropriately proactive or an overreaction. Regardless of the correct response, we have and will see an impact at the global economic level, and we have and will see an impact at our personal portfolio level, too.
As we come out of this and we look back, we’ll see the global economy will have slowed, just like our portfolios, but similarly – at some point – the global economy will rebound, and our portfolios will rebound, too. We will continue to control and mitigate unsystematic risks; systematic risks will always be present, and they will always be impactful. How we respond is paramount (both in an overall sense, and at our portfolio level). We can’t panic, this might get worse before it gets better, and we must look for opportunities to inject money into stocks while markets are down, and things have slowed. The US market has fully recovered from every historical market panic, and this time will be no different. In time, our resolve will reward us.
