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As the old saying goes, what goes up must come down.
U.S. stocks lost $1.7 trillion in market value over the past two days on mounting concerns the deadly coronavirus outbreak will further damage an already slowing global economy.
If you’re worried about your retirement savings, portfolio managers have some advice: Stay the course and remain calm.
But if you just can’t stomach the stock market’s losses this week, experts say it’s time to ask yourself: What’s my appetite for risk?
“One of the worst things someone could do is make changes to their portfolio in reaction to the last two days,” says Tom Plumb, president at Plumb Funds. “But if you think your portfolio is too risky, you should develop a new plan over the next three to six months.”
Here are four moves experts say could help protect your investments during volatile periods, like the bumpy stretch caused by the coronavirus:
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1. Review your investments
First, pay attention to where you’re invested and which companies are most likely to be affected, portfolio managers say.
Daniel Milan, managing partner at Southfield, Michigan-based Cornerstone Financial Services, believes the effects from the deadly virus on the stock market will be short-lived and has cautioned his clients to not let fear drive their investment decisions.
“When dealing with a virus like this, it’s important for investors to review and recalibrate their long-term goals,” Milan says. “If fear is driving you to make emotional decisions in the stock market, then that’s a sign that you weren’t allocated appropriately for the long term.” he says,
2. Consider trimming exposure to Asian stocks
One thing to consider is how much direct exposure you have to emerging-market stocks in Asia.
Milan suggests trimming your exposure to Asian stocks in the travel and retail industries that will likely see a slowdown in earnings growth because of shutdowns, supply issues and a drop in consumer spending.
Spending by consumers accounts for nearly half of China’s economic activity. If they opt to stay home instead of shopping or traveling, that would depress tourism and threaten earnings growth for consumer-oriented companies in Asia.
3. Evaluate multinational companies
U.S.-based multinational companies with large exposure to China’s economy are already grappling with production delays from the virus, including industries like manufacturing, automotive, airlines and technology.
Semiconductor companies, for instance, derive much of their revenue from China and could face challenges in the near term. Apple already announced it won’t meet its earnings outlook for the current quarter because of supply chain interruptions. United Airlines and Mastercard, meanwhile, warned this week that the outbreak will hurt their finances.
To be sure, cheaper stocks are a good thing for investors over a long-term horizon, and some of the recent weakness among those areas could still serve as an opportunity to buy stocks whose prices are lower, experts say.
4. Strengthen positions in U.S.-focused companies
U.S.-focused companies in industries like utilities, real estate and consumer staples — businesses that make basic household goods — could serve as a shelter from virus-related issues. That’s because these companies typically have little exposure to international supply chains.
Telecom companies like AT&T and Verizon also tend to offer favorable dividends for investors, analysts say, which could offer further protection for investors. As bond yields have fallen to record lows, stocks with steady dividend payouts have become more attractive.
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