Despite coronavirus fears, a fast recovery is predicted for your 401(k) plan

Personal Finance

A pedestrian wears a face mask while pushing a stroller past the Tiffany & Co. luxury goods store at Times Square in the Causeway Bay district of Hong Kong, China, on Thursday, Feb. 6, 2020.

Bloomberg

Here’s a comforting fact as the market grapples with the coronavirus: Your 401(k) plan is pretty resilient.

The alarming spread of the respiratory illness that began in Wuhan, China, has already sickened over 28,000 people and killed more than 560 since Jan. 20. Companies are citing the virus in their earnings calls, and one economist, AdMacro Head of Research Patrick Perret-Green, said the outbreak risked a “Lehman-type moment.”

Take a deep breath.

History shows that stocks typically snap back fairly quickly from disease outbreaks.

“On a forward-looking basis, dengue fever, swine flu, Ebola, measles, rubella, Zika, they don’t hurt the stock market that much,” said Dan Egan, managing director of behavioral finance and investing at Betterment.

In 2016, the Zika virus, linked to birth defects in the babies of mothers infected while pregnant, tore through Latin America, the Caribbean and the U.S. The global stock market shed 6% a month after Zika took off. But six months later? It was down just around 0.6%.

The deadly Ebola virus that broke out two years later dragged global stocks down more than 7%. Just half a year later, much of those losses rebounded.

Stocks were down 2% in the immediate wake of the 2010 cholera outbreak, which eventually sickened more than 6% of Haitians. Six months later, they were up more than 13%.

“They recovered all of those losses – and then some,” said Jeffrey Kleintop, chief global investment strategist at Charles Schwab. Kleintop compiled the research on how the market has responded to previous disease outbreaks.

Some patterns of the past are harder to learn from. As cases of the swine flu rose in 2009, so did stocks.The coronavirus has triggered similarly nonsensical market movements. One day investors responses are diagnosed as overblown, the next, muted.

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Your takeaway? “Ignore the noise in the short-term,” said Steve Wendel, head of behavioral science at Morningstar.

Egan at Betterment agreed. “The people who actually come out of this the best are the people who think about things in the context of their own plan, not in terms of trying to predict the trends,” he said.

Staying calm amid a disease outbreak is not easy, experts say.

“It’s a topic that feels closer to home and therefore has a more dramatic response in the market,” Egan said. And of course, as the disclaimers remind us, past performance is no guarantee of future results.

Nevertheless, it’s good to know we’ve been here before and come out ahead.

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