How Safe Are Your Retirement Investments From the Coronavirus?
He had just returned from a business trip in the Chinese city of Wuhan. After days suffering through an intense fever and sore throat, the 50-year-old man visited a hospital in Beijing. Doctors feared the worst. “Coronavirus,” officials reported.
He died a day later.
That incident marked the first confirmed death from coronavirus in China’s capital city. Since then, experts say the epidemic has only gotten worse. As of this writing, the coronavirus has infected more than 4,500 people worldwide. Health officials have reported outbreaks in France, Germany, Canada, and the United States.
Investors haven’t taken the news well. On January 27, the Dow Jones Industrial Average plunged 400 points on contagion fears. That sell-off sparked a rush into safe-haven assets like gold, bonds, and U.S. dollars.
So does the coronavirus pose a risk to your retirement investments? Possibly. Or maybe not much at all.
During periods like these, it’s helpful to dig into the historical market data.
As such, I’ve highlighted the returns for the MSCI World Index, a good barometer for global stock markets, in the table below.
| Period | MSCI World Index Average Return |
| One Month | 0.44% |
| Three Months | 3.08% |
| Six Months | 8.5% |
(Source: Yahoo! Finance, last accessed January 27, 2020.)
Financial markets follow a similar pattern during outbreaks: investors panic on the initial uncertainty. Markets drop hardest when the pace of new infections accelerates. But as officials contain the illness, equities eventually recover.
We saw this play out with the Zika virus in January 2016. One month following the outbreak, global stocks plunged six percent. By the summer, however, equities had recovered almost all of their losses.
But in other cases, outbreaks have had little impact on stock prices. In 2003, for instance, global equities rallied nine percent following the outbreak of the SARS virus. The index appreciated another 15% over the next five months.
This isn’t meant to imply that outbreaks have had no economic impact whatsoever. Aside from the obvious tragic deaths for those infected with a disease, pandemics can cripple shopping centers, transportation systems, tourism hotspots, and healthcare systems.
That can have a long-term impact on the economy, especially in the places at the center of the outbreak.
Contagions can also create winners and losers in the stock market. Shares of U.S. and Chinese hotel operators such as Marriott International Inc (NASDAQ:MAR) and Shangri-La Asia Limited (HKG:0069) plunged in previous outbreaks as tourism and business travel ground to a halt. We have also seen big sell-offs in airlines and casino operators.
So how will things play out this time with the coronavirus? No one can say.
China’s transit system has expanded substantially since the SARS outbreak, making it much easier for any disease to spread. And today the country has the second-largest economy in the world. So any slowdown there will have ripple effects worldwide.
But for most investors, the best course of action is to do absolutely nothing. Don’t go to cash. Don’t buy gold. Don’t stash your retirement investments in a tin can under the mattress.
Being cautious and waiting for the dust to settle sounds savvy. But the future is always dusty. And historically, these panics have provided great buying opportunities.
The best approach is probably the simplest: turn off CNN, stick to a written investment strategy, and don’t watch “Contagion” on Netflix.