COVID-19 and your investment portfolio

BY FAZAAD BACCHUS

The continued spread of COVID-19 has resulted in increased stock market volatility and wreaked havoc in the markets during the first three months of 2020. The recent year-to-date decline of over 25% on the major North American stock indexes will have a negative effect on everyone’s investment portfolios. When you receive your first quarter statement, it may come as quite a shock.

How did we get here? Well the Coronavirus was first discovered somewhere in December of 2019 and presumably in a wet market in Wuhan, China. It started to spread there, and the Chinese Government made a decision to lock down Wuhan to contain the virus. Other countries while understating the risk involved, didn’t act with such drastic measures and virus soon infiltrated their own population by way of travelers from infected areas. Cruise ships were amongst those affected and so far, Italy has been the hardest hit.

By late February fears regarding the virus began to slowly escalate and its effects on markets began gradually. The market dropped slowly every day, and everyone was waiting for it to come back up after enduring a 10% correction, but that was not to happen. A pandemic was announced in early March, travel suspended, public gathering curtailed, borders closed, international travel banned, flights cancelled, restaurants closed, supermarket shelves running empty and the list continues… then it hit us like a ton of bricks in a matter of one week. It was like Black Monday in 1987 all over again.

In the last two weeks the Canadian government announced monetary measures to help combat the negative effects of the downturn. While the outlook is not one of doom and gloom, the recent downturn has affected everyone. By now you would recognize that we are experiencing a difficult and unprecedented period in the worldwide economy and life in general as we know it has changed drastically. We don’t know how long this will last and whether we will see resurgence when everything seems to have quieted down.

When you receive your statement, it is important to understand that you haven’t lost money; it’s only a paper loss or an unrealized loss. While the value of your units has declined, a loss happens only when you choose to sell. Over time the value of these units recover and capital growth begins all over again. During a significant economic downturn, it is tempting to make drastic changes to your investment strategies. However, history has taught us that a well diversified and adequately structured portfolio is capable of weathering difficult periods and it’s important to stay focused on your long-term goals.

The biggest mistake a client can make during a market downturn is to cash out their investments, doing this means you sell at a loss and you never get the gain when the market is coming back up, hold strong. Please don’t hesitate to speak with me about any concerns you might have about these recent events.