Coronavirus Affects on Stock Markets & Role Robo- Advisors
As the Coronavirus spreads its tentacles across the globe and more and more people get infected, countries are going on lockdown. As a result, economies of many countries have slowed down; the global stock market has taken a bearish turn, and prices of stocks have faced a significant drop at a rapid pace. As grim as the current situation might look, there’s no reason to panic, even if you’ve lost money.
Stock markets have always fluctuate based on different political, social, and economic events. Whether it’s wars or global pandemics, stock markets are not immune. The latest culprit is the Coronavirus and the deadly respiratory disease COVID-19 that comes with it. The virus, which originated in Wuhan province in China, has gone on to infect over more than a million people in the world (as per statistics maintained by the Johns Hopkins University). Over 70K people have died worldwide as a result of the disease which the World Health Organization has labeled as a global pandemic. After failing to contain the spread of the virus, numerous Governments were forced to implement strict lockdowns across countries. This resulted in a major economic slowdown all over the world, as a lot of businesses were forced to close temporarily or work at a slower pace with lower employee presence. The stock markets around the globe have felt the impact and have turned decidedly bearish. Many investors have lost a significant amount of money in the process.
However, all is not lost, and this short term loss isn’t a sign of the end of times. The market faced a big drop already, but during this time, companies like Airbnb, Spotify, and Tumblr were all founded in 2008 .
Wealthface based on a Nobel prize award academic research have backtested all their portfolios since December 2017, which not many Robo- advisors or portfolio managers have done that.
The reason behind that it was to make sure that the return portfolios are not biased since the market trend was up for the last 5 years, and we want to make to prepare ourselves for the worst-case scenario if that happened again.
Yes, the situation is terrible, but if you continuously follow headlines, you will find it tough to keep your money invested for a long time. Your investments are unlikely to come back to you in a short period because markets take a while to recover from similar situations. In such a scenario, it’s beneficial to stay in touch with a financial advisor. In case you have a Robo-advisor, it’s even better because Robo-advisors do not make decisions based on emotions or short term occurrences. The financial markets have reacted similarly to previous outbreaks. Equity prices of sectors like travel in the worst-hit regions like China and Italy have seen a massive decline. However, the “haven assets,” gold and government bonds, have improved. While nothing can be said surely, if history is anything to go by, prices have always bounced back across all categories after these outbreaks.
One thing all investors must remember is that a temporary downturn doesn’t have a major impact on where the markets will end up five or ten years down the road. The Brexit referendum, Donald Trump’s election, the Chinese market slowdown, have all impacted markets worldwide. The Dow Jones might have dropped 6.7% over 10 days span during the Coronavirus crisis; it still gained 181% over the last 10 years.
Even if you have short term investment goals, you shouldn’t be worried. When you sign up with a Robo-advisor, you will be asked to fill a questionnaire that has questions about financial goals, timelines, and how much risk you are willing to take, at the time of the account’s setup. The Robo-advisors handle the risk tolerance of every investor at the time of the account’s setup. Drowning out all the negativity (in regards to the market scenario) is very important right now as it might lead to emotional decisions. Robo-advisors are the ideal tools for that purpose.
A lot of detractors of Robo-advisors might say that in times of crisis, investors would prefer to have the reassurance of a human voice. Still, Robo-advisors aren’t as devoid of human connection as a lot of people make them out to be. Wealthface provides the option of phone calls with advisors, along with the benefit of communication over text messages and emails. So have the conversations, take a look at history and remember why you decided to invest your money in the first place.
At wealthface, the investment team has made sure to diversify clients’ portfolios in different asset classes, and we include commodities like gold and other commodities’ that appreciate the last 2 months to spread the risk. This helped us to make sure to minimize the risk, which has helped our clients to face the large drop in the market in their portfolios.
The current scenario is also an excellent time to self-reflect as an investor. While it’s easy to call yourself a risk-taker when the market is bullish, it’s not so easy to say that when the market is bearish, and you are losing a lot of money. So you might be able to see some truths about your risk appetite and investment attitudes. If you are badly unnerved by the current market scenario, it might be a good idea to select industries that are less volatile and invest in stocks or other investment tools that are more or less immune to global affairs. However, you mustn’t forget, the Coronavirus pandemic isn’t the first or the last worldwide event that’s going to have an impact on the stock markets. A lot of such incidents have happened in the past and will happen in the future as well. In the long run, the stock market has done well, and will, in all likelihood, continue to do so in the future.
