Remaining Calm When Uncertainty Surrounds Us
First off, I am not a doctor, so I am not going to try and discuss viral transmission rates, virology, mortality rates, or try to put COVID-19 into any analogy to make us feel better or worse. Perhaps it’s also true that many other resources know as much about the virus as I do, so please take caution.
History says that when faced with uncertainty, we as humans tend to panic. This panic leads us to our instinctual “fight or flight” reflex that comes from our hunter-gatherer ancestors hundreds of thousands of years ago. Humans feel compelled to do something.
You can see this in several ways that now seem irrational. Remember after 9/11 when nobody would travel to New York or even get on an airplane, or when President Bush wore a bulletproof vest to the World Series? How about at the height of the HIV virus epidemic when individuals were shunned and ostracized from families and society, sometimes even violently? Remember when the Fukushima nuclear disaster in Japan caused a run on pharmacies of potassium iodide pills on the West Coast of the United States?
At the moment, those events were rational reactions for many. Today, they might seem like an overreaction.
As it relates to your investments, nobody knows the true impact of COVID-19 on the global economy in the coming weeks. Nobody knew what the future held for H1N1, Ebola, SARS, or Zika at the height of their outbreaks. At those times, people panicked and sold, only to find those investments higher days, weeks, and years later.
A sound financial plan is an investor’s best defense against the “fight or flight” response. Plans are designed with the knowledge that the future is uncertain and that negative events are inevitable. Instead of panicking and speculating, take comfort in knowing your portfolio was designed to accommodate this and all the other bumps on the road ahead.
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