#coronacrisis Part 1: Red alert! Red alert! We're in quarantine. But don't worry; don't panic.
Updated: Mar 23
WTF is this blog about!?
Living through your first financial crisis? 🙋 Me too!
Those of you with investments have probably made hefty losses recently and those of you without them are probably thinking thank f*ck!
But what is actually happening to the economy? What should I be doing to protect my money? And why should I invest at all?
WTF is happening!?
It's fair to say that the world has gotten a little more crazy since my last blog!
The Coronavirus first emerged in Wuhan, China in December 2019. Since then, it has spread across the globe, causing panic and disruption to the world economy; with suspended production lines, entire countries on 'lock down' and many companies unable to operate. All of these things have contributed to the largest fall in equity markets (about 30% in the last month) since 1987 😲.
What does this mean for me?
If you have any investments, you've probably witnessed them fall in value overnight. This is because you, my friend, along with a sh*t tonne of other people (including me) are experiencing your first financial crisis, which sucks (on the plus side, at least we'll have something to add to our CVs to compete with those dinosaurs that worked through the 2008 GFC - that's Global Financial Crisis rather than Greasy Fried Chicken).
It's really damn scary watching your hard earned cash evaporate before your very eyes, but one way you can help yourself is by not checking your f@*king phone! We live in a world where we can listen to music, read fantastic personal finance blogs and access our bank accounts all at the click of a button, which is awesome. But, when the world's as unpredictable as it is now, receiving a notification on your phone every two seconds reminding you of how much money you've lost is super unhelpful.
I like to think of investing like taking a flight - there's only a few things that really matter:
1) Where you get on (i.e. when you buy);
2) How long the journey is (i.e. when you'll need your money back); and
3) Where you get off (i.e. when you sell).
Everything else is just part of the journey - so try not to focus too much on every little bit of turbulence (i.e. market volatility).
That said, what we're experiencing now is a stark reminder that all investments are risky. And, whilst it can be very tempting to panic and whip your money out of the market in the face of uncertainty, it's important to #checkyourselfbeforeyouwreckyourself.
Take a step back and remind yourself why you invested in the first place, hopefully it's to fund a long-term goal and so you should be prepared to ride out the storm (and if you do need your money right now, you should really be holding it in a bank account rather than investing it).
What do I mean by 'riding out the storm'?
Check out the charts below. These show what would have happened if you had invested $10k into the MSCI World* a month ago (19 Feb 2020) vs. 8 years ago (1 Jan 2012). They tell us two things:
1) If you had invested $10k a month ago, you would have lost around $3k (30%) of your money, which is why experts recommend that you don't invest your money unless you're willing to leave it for at least 5 years.
2) If you had invested 8 years ago, despite the 30% drop last month, you would still have around $16k (that's a $6k gain)!
For those of you that are still skeptical, take a look at the chart below, which illustrates stock market performance over the past 100 years or so:
This shows that over the long run, despite multiple global crises (i.e. The Great Depression, WW2, 2008 GFC), markets have always gone up. This is a trend that's existed longer than any of have been alive and one that's likely to continue.
Things are scary right now, but remember:
1) If you don't have investments - don't let this market volatility put you off investing. Take another look at the charts above and notice how, over the long-term, markets have continued to rise - so, whilst you shouldn't be investing for a short-term goal (e.g. a holiday), investing for a long-term goal (e.g. a house or retirement) still makes sense.
2) If you have investments - before you panic sell, take a step back and remind yourself of your goals. Unless you need the money right now, you shouldn't be selling. Markets are bound to come back up at some point, like they have done previously (i.e. after the 2008 GFC), so just be prepared for a bumpy ride until then.
*The MSCI World is a way of investing in equities (stocks and shares) across a wide range (1,000-2,000) of companies from around the world. This is far less risky than investing in a single company (like Apple). There are other versions such as S&P 500 (which is the top 500 public companies in the US) and FTSE 100 (which is the top 100 public companies in the UK).