To say coronavirus has had an impact on the stock market would be an understatement. For just the sixth time in a half-century, the S&P 500 fell by more than 34% between its peak on February 19 and March 23 as COVID-19 sent America into a great lockdown. While the market rallied quickly following the collapse, more than half of all Americans think the worst is still to come for stocks.
Yet despite the wild ride the market has been on, most Americans have made smart decisions through the chaos.
Here's what investors have done during the coronavirus market volatility
Most Americans have done the best thing they can do during a crisis: nothing.
In fact, according to research from Fidelity, only 7.3% of retirement savers made changes to how their 401(k) funds were invested in the first quarter of 2020. This is just a slight increase from the 5.2% of savers who altered their investment mix in the last quarter of 2019 before the market chaos began. Even Americans who did make changes were cautious about shifting around their assets. In fact, of the retirement savers who altered their investment plan, 60% made just a single change during the first quarter of 2020.
Doing nothing is usually the best plan for investors because generally by the time most people realize a market correction is coming, it's already under way and its too late to avoid any short-term losses it could cause. By changing your investment strategy in response to a downturn or even to increased market volatility, you're most likely to lock in losses by missing out on a potential recovery.
Of course, there are a few exceptions that apply to the general rule that inaction is the best response to bad news. You should sell stocks if you no longer think the companies you're invested in are good ones. That doesn't apply to most 401(k) investors who usually don't have their money in individual stocks.
And if you had the wrong asset allocation going into the crisis, you may also want to make adjustments. That's what some baby boomers did. Fidelity found that boomers changed their 401(k) investments at a higher percentage than others in the first quarter of 2020, with 9.9% of savers in this age cohort altering their asset allocation. Most moved into more conservative investment options.
While it's best to have an age-appropriate mix of investments before a crisis happens and you experience losses, responding to market chaos by becoming more conservative if you're an older investor at least limits your downside risk going forward. This is important if you may have to begin drawing from your investment accounts soon and don't have time to wait out a prolonged downturn, which younger investors can more easily do.
How should you handle investing in the time of coronavirus
Most people should follow the lead of their fellow Americans, making few or no changes to your investments. But you need to consider whether your portfolio is appropriately diversified, whether you're taking on the right level of risk for your age, and whether you're still confident in the investments you've chosen. If you can answer yes to these questions, staying the course is likely your best bet.