The coronavirus disease 2019 (COVID-19) has changed daily life around the world. Beyond the evident health concerns and travel disruptions, the outbreak has also shaken financial markets. Many people have heard from their financial advisors, reassuring them to remain calm during market volatility, but seeing major indices fall can still be unsettling.
An independent perspective
Deciding on a continuing care retirement community (CCRC) or another retirement option is one of the more significant financial choices older adults face. With markets in flux, many prospective residents and their families are understandably anxious about timing and affordability.
Although I have not been actively working in financial planning for several years, I have background in the field and offer an independent viewpoint on what the market turbulence might mean for retirees and those considering a CCRC.
I am not an expert on the medical aspects of COVID-19, and I hope the spread subsides in coming months as some have predicted. There are differing opinions about how the virus will evolve, and outcomes remain uncertain. Some analyses that adjust for unreported cases and exclude certain early outbreak data suggest the mortality rate could be lower than early reports indicated, possibly nearer rates seen in severe influenza seasons. Those assessments are still preliminary and vary by region.
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Uncertainty drives market volatility
The defining challenge for markets right now is uncertainty. Past recessions and market corrections often stem from identifiable economic imbalances or single events; this situation is different because the global economy is being disrupted by a public-health event. That makes forecasting more difficult and increases market sensitivity.
It’s possible markets have overreacted in the short term and could rebound if the virus is contained. On the other hand, a widespread outbreak could deepen declines. Before COVID-19, many economists already expected a recession within the next year or two; a major domestic outbreak would likely accelerate that timeline.
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What to do about your accounts
From a market perspective, the recent pullback does not necessarily signal a crisis for investors with properly diversified portfolios. Many had argued the market needed a correction after an extended run-up, and a 10–20 percent drop can simply bring valuations back in line with long-term trend lines.
Some investors have been reluctant to add funds during recent years because prices felt elevated. For those considering adjustments now, it helps to look at long-term allocation and personal time horizons rather than reacting to short-term headlines.
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Importance of proper allocation
Retirees and older adults who follow appropriate asset allocation—diversifying between stocks, bonds, and cash according to their time horizon—are generally better positioned to weather volatility. A typical conservative allocation holds a sizable portion in bonds or cash, which can reduce portfolio swings compared with an all-stock approach.
While low interest rates make holding cash less attractive for income, bonds have recently offered relative protection as stocks have fallen. Year-to-date, for example, bond indexes have shown modest gains while stock indexes declined. A conventional 60/40 stock/bond portfolio would experience a smaller overall drop than a pure equity portfolio, and more conservative mixes—such as 80/20 for older investors—would reduce volatility further.
That example uses broad stock and bond indexes and will vary with specific holdings and international exposure, but the key point remains: diversification tends to smooth returns. Even after recent declines, a diversified portfolio’s long-term return can still be positive when viewed over a full year or longer.
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Stay steady during turbulence
Perspective matters. Watching markets closely is prudent, but panic-driven decisions often harm long-term outcomes. For many retirees, maintaining a disciplined approach aligned with financial goals and time horizons will serve them better than trying to time the market’s short-term moves.
If you prefer to reduce risk by shifting toward bonds or cash, doing so as part of a planned allocation change is reasonable. Based on how diversified portfolios have behaved, such adjustments wouldn’t necessarily represent selling at the absolute bottom.
>> For more information on COVID-19, please visit the Centers for Disease Control website.
Please note: This article is for informational purposes and should not be considered investment or financial advice. Consider your personal circumstances and consult a qualified financial professional before making decisions.
Photo credit: Alissa Eckert, MS and Dan Higgins, MAM, Centers for Disease Control & Prevention