The spread of the coronavirus has caused concern around the world and its effects have been felt in the stock market this week. Investors have watched gains from the past year disappear causing concerns about the future of their portfolio. Here are 5 things you need to know:
1. The market has entered a correction, a term used by analysts when market indexes fall 10% or more from their recent peak. The S&P 500 has fallen 12% this week. This is the fastest correction since 2008. Market corrections aren’t unusual, occurring 37 times between 1980 and 2018. The typical correction is a 13% drop in value. A correction is not the same as a bear market which is characterized by a drop of 20% or more in value.
2. The coronavirus and its effects on the stock market are likely to linger. As a result, large companies like Apple are revising their earnings expectations downward for the year. Since China is experiencing the worst outbreak of the virus, it especially hurts companies who depend on China as part of their supply chain. Goldman Sachs has warned investors to expect little earnings growth in S&P 500 companies this year if the virus continues to spread.
3. The market correction is a reminder why it is good to have a diversified portfolio like PCA Retirement & Benefit’s Target Retirement Funds (Target Funds). Target Funds employ broad diversification and seek to set risk appropriate for your age and provide reasonable returns. Your mix of stocks and bonds will depend upon your anticipated retirement date. Those closer to retirement will have a higher percentage of bonds, while those further away from retirement will have a higher percentage of stocks. Target Fund allocations are professionally developed and simplify investing decisions.
4. The market rewards patience and resilience. As the following chart from the New York Times shows, stocks generally reward investors who look at their investment in terms of decades and not days. In fact, mature investors often do things that are counterintuitive. When stocks slide, it is not time to sell them. Rather, it is an opportunity to purchase them at a discount. If anything, the current market volatility provides every investor an opportunity to examine your portfolio to make sure it can withstand normal market corrections
5. As Christians, we don’t trust in the chariots of Wall Street but in the name of the Lord our God. The current virus is an opportunity to pray for those impacted by it and for God to heal the nations, physically and spiritually. Market volatility is also a great opportunity to examine our own lives and increase our faith in things that cannot be shaken.
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