COVID-19 has global markets in a state of flux
Sid Vaidya, TD Senior Vice President & US Wealth Chief Investment Strategist
The volatility of the markets over the past month has been difficult for everyone to witness on top of the greater personal concerns about COVID-19. The uncertainty around the virus is something that unites us all, while the full impact of the virus, especially long-term, on the economy and global markets, could be substantial. However, significant fiscal measures could alleviate some of the adverse effect.
I’ve prepared the best advice TD has to offer in response to the most common questions investors are asking our wealth advisors and strategists right now. While this information is meant as general advice during unpredictable times, I must stress that investors consult with their advisor for more specific advice aligned with an individual’s long-term investment goals.
Q: What does the virus mean for global financial markets?
It is important for us to distinguish between the short-term and long-term effects.
In the short-term, the focus is on combating the virus outbreak by containing the spread of the virus and the impact on our healthcare resources. When it comes to fiscal and monetary authorities, they need to implement policies designed to ensure there is adequate liquidity at this time of significant economic disruption.
So, in the short-term it's about instilling confidence. We are confident that once we get a set of policies and a coordinated plan of execution, the extra layer of fear we currently see in the market will dissipate.
On a longer-term basis, what drives the economy and markets are fundamentals. An extended pandemic will have a significant impact on economic growth, company earnings and employment, and will require a sizeable response from the federal government. At present, we are in the eye of the storm, but just like other health epidemics and pandemics we have faced in the past, we will pull through, though things may take time to recover.
Q: Should I stay invested?
The short answer is yes. Trying to protect yourself by attempting to predict the ups and downs of the market (and moving in and out of them) could mean missing out on long-term growth.
Behavioral finance studies have shown that the emotional impact of losses is more than twice as strong as the pleasure received from gains. So, what you are feeling right now is normal.
Fear of loss has also been one of the strongest psychological factors in market underperformance. Many investors that took decisions to sideline themselves during the 2008 financial crisis did not participate in the subsequent strong market performance afterwards.
TD Wealth's focus is on risk management, downside protection and low-volatility investing, as we believe a well-balanced portfolio, paired with a long-term view, helps soften the impact of short-term volatility. We want to ensure clients are invested in a portfolio that keeps them in the market in times of turbulence to provide income diversification, ongoing stability and capital safety.
For balanced investors, the role of fixed income in this environment should be to help provide that income, stability and a source of downside protection.
Q: What is the difference between risk and uncertainty?
Where things like the U.S. election, trade disputes, a possible recession and geopolitics were identifiable "risks" at the beginning of 2020, unpredictable events such as COVID-19 are impossible to quantify and a good example of "uncertainty."
For situations that fall under the "uncertainty" category, however, we’ve built resilient portfolios that take advantage of our true diversification approach. This means combining asset allocation, factoring in diversification across asset classes, geographies, risk factors and macroeconomic environments, along with behavioral finance considerations.
While the market volatility over the past month has been difficult, our advice is to speak with your advisor about whether a more diversified portfolio that is not overexposed to adverse events (and one that is prepared for the risks and uncertainties currently impacting global financial markets), is a desirable option at this time.
Q: What’s your best piece of advice for investors?
Do not lose sight of long-term goals. This is good advice beyond what’s currently happening with COVID-19 and applies anytime an investor faces a change in their finances or a major life event.
The TD Wealth investment approach emphasizes a long-term, goals-based investment planning focus. Our view is that for those with a long-term horizon, the volatility we are currently experiencing may in fact be opening up opportunities to buy companies with good fundamentals at much better valuations.
Investors should also take the time to understand and be realistic about their near-term liquidity needs and ensure they are effectively represented with investments that can meet those needs. If you still have concerns, we would encourage you to have a discussion with your relationship manager and investment advisor.