Coronavirus and Your Portfolio: Part 2

By Gary Silverman, CFP®

Last week we started looking at the economic effect of the coronavirus. You know more than I do at this point, since I’m writing this in advance. Nevertheless, there are learning points no matter where we are with the epidemic.

While last week’s article might have seemed doomsday-ish (which Microsoft assures me is not a word), we have to have some context. After all, last week I told you that China’s GDP growth rate was estimated to be dropping significantly. The context I then gave you was that they would still be growing at twice the rate of the United States. And we’re not doing too bad.

For a virus context, let’s look at the last biggies. Due to my laziness in getting permissions and such, you will have to take my word on this. I’m staring at a chart and see the following: SARS, Avian Flu, Swine Flu, MERS coronavirus, Ebola, Zika. These all scared the wingnuts off of many a person. Tales of impending doom were forecast. Yet, if you plot the occurrence of these against the performance of the stock markets you would be hard to tell if there was any effect.

Trust me, there were effects. Some were large and some were small, but every one of these health scares had an effect. It’s just that it is hard to see that particular effect compared to all of the other scary things that go on every quarter in every economy.

The COVID-19 coronavirus should also be put into perspective. At the time of this article was being edited, about 3300 people have died. That it will go well over 4000 is pretty easy to predict. But consider this: Last year it was estimated that over 60,000 people died of the flu worldwide. In the 2017-18 flu season over 80,000 people died…in the US alone (it was a bad year, but even in a “good” year, well over 10,000 die in this country; so, get your flu shot).

We modern humans are just bad about putting things into context. While writing this, I was on a business trip…the second one in three weeks. Both involved air travel. Many people are hesitant to step on a plane given that they occasionally crash. Yet statistics show that the vastly more dangerous part of my journey was the car ride from our home to the airport and back.

“But this time things are different,” is a refrain I will hear. And that refrain is correct. Every time is different. This coronavirus will have more or less an effect on more or fewer economies and cause mayhem for more or fewer businesses which will cause the [fill-in-the-blank] market to drop further or less and recover faster or slower.

Things are always different…good luck predicting what that will mean.

We will go over more of this next week, along with a warning about frauds, lies, and scams proliferating faster than the virus they are talking about.

Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing.