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​Reflections on recent market volatility

The headlines related to the coronavirus, or COVID-19, are scary; “Virus now growing faster outside China,” “Infection spread speeds up beyond China as virus breaks new ground,” and so on. It seems a pandemic is inevitable. And, of course, that means we’re doomed to a prolonged economic slowdown of global proportions, right? Not so fast…

How have epidemics affected markets in the past?

The normal disclaimer that the past does not necessarily predict the future applies, but we nonetheless have some past experience with epidemics and other turbulent market events that we can look at to try to understand how markets (and individual investors) react in these circumstances.

In 2003-2004 there was the SARS outbreak and in 2009 it was H1N1; at the end of the last century it was the tech bubble, and we also had the financial crisis a little over 10 years ago. During the periods of disease outbreaks, market sectors like travel and geographic regions particularly hard hit by the outbreaks saw significant negative declines. In these instances, markets recovered relatively quickly once it was determined that the outbreaks were being contained. Similarly, the market calamity caused by the tech bubble and the financial crisis reversed relatively quickly when investors realized the sky was not falling.

So, what about this time? 

Will markets reverse in short order or are we in for a prolonged downturn? The short answer is we don’t know. Nobody knows with certainty what the future holds. This is one of the reasons that the CSS Pension Plan provides custom-built, diversified investment options (i.e., our Balanced Fund, Money Market Fund, Equity Fund, Bond Fund) that have been built to perform over the long-term knowing that markets will encounter volatility and downturns from time to time.  

When you are a long-term investor, patience and continuing to invest, even through periods of uncertainty, typically results in a better long-term outcome than trying to time markets (hint: we do not recommend trying to time market movements). You can find more information on market timing here.

What if my time horizon is not long-term?

The Plan’s website has numerous resources to assist you in developing your retirement plan including our investor profiles area. The profiles can be very helpful in identifying key considerations that should go into your retirement plan depending on your own personal circumstance.

If you’d prefer to speak to someone at the Plan to discuss your specific situation and what you should consider given recent market events, please contact one of our Pension Plan Consultants.