Global concerns have grown since the outbreak of coronavirus, rattling investors, and equity markets worldwide. Over the last nine days, approximately nine trillion dollars have been wiped off global stocks, and investors are turning from equities to 10-year notes. However, this flight to debt has caused 10-year US Treasury rates to drop to record lows, signaling that investors are very concerned about future growth in the economy. Given the severity of the issue, we see five main themes emerging during this time.
1. Long-term Perspective
Long-term investing is often best disconnected from short-term economic reactions, and fears of coronavirus are expected to stabilize in the longer term. Like other economic downturns, this one is no different. Historically, disciplined and experienced investors’ portfolios have benefitted over time due to their measured long-term approach.
2. Test of the Robo-Advisors
Robo-advisors are new entrants since the ‘Great Recession’ of 2008-2009. The falling market will provide another critical test of robo-advisors. Robo-advisors such as Wealthfront and Betterment, are seeing more inflows than outflows, along with an increase in new investment account signups during the market instability.
3. Goals-Based Planning Will Show Benefits
Economic shocks like that of coronavirus also highlight the power of goals-based planning. Goals-based planning protects investors well from short-term economic shocks. Investors using this approach base their investments primarily on the risk capacity aligned to each goal and lower-risk financial instruments fund near-term goals. As such, there should be a limited impact on their goals-based investments.
4. Short-term Asset Allocation Shift
Finally, we are seeing investors moving assets to less risky investments, including 10-year notes and bonds to avoid downside risk. These are market expectations, and those same investors will likely also consider returning to equities when the market bounces back to capitalize on market gains.
5. Comunication with Clients is Key
From a wealth and asset management firms’ perspective, now is the time to ease tensions and provide guidance to clients that may have been affected by coronavirus impacts – both personally and economically. Communicating effectively to clients during these times can make a big difference. Advisors should be there for their clients to make them feel financially stable and help them navigate through trade-offs during this period of uncertainty. Advisors have an opportunity to demonstrate their value and mitigate the reactionary instincts of their clients.
The effect that coronavirus has had on financial markets to date looks similar to other economic downturns that we’ve seen throughout history. However, the full impacts of COVID-19 are unknown, as it remains unclear whether we have seen a peak in diagnosed cases, these five themes are a sample of some of the issues that may impact the wealth and asset management industry during the outbreak.