A sense of panic has taken hold of the market this week as the COVID-19 coronavirus continues to spread.
On Monday, the Dow Jones Industrial Average dropped 1,031 points (3.6%). Today, the Dow dipped another 650 points (2.4%) in afternoon trading.
But remember, in times like this, panicking is the absolute worst thing you can do.
So our first step for investors today is a simple one. Take a deep breath.
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Panic selling in moments like this has proven time and again to be the wrong strategy.
Today, we'll show you exactly how to protect your money from the market's extreme volatility this week.
First, here's what the experts at Money Morning expect from the markets this week.
This Is Serious, but Not a Time to Panic and Sell Your Stocks
Make no mistake: the spread of the COVID-19 virus is very concerning.
We're not downplaying that.
And as Money Morning Chief Investment Strategist Keith Fitz-Gerald pointed out on FOX Business Network's "Varney and Co." yesterday, the sell-off we've seen this week is a direct response to the uncertainty surrounding COVID-19.
"This [selling] is all about the virus, and the spread of it," Keith told Stuart Varney. "We potentially have a far more serious situation than the media or any government is letting on."
Money Morning Capital Wave Strategist Shah Gilani also appeared live on FOX Business Network to weigh in.
"This is a 'wait and see' game right now," Shah said. "And as Keith pointed out, we don't know how far the virus may spread. I believe the news out of China has been clouded from the get-go. So we really don't know the extent of it, and I think that's what investors are worried about."
If there's one thing the markets hate, it's uncertainty. Unfortunately, that's exactly what we have with the coronavirus.
It's not the answer anyone wants to hear, but we simply don't know how far the coronavirus will spread. That also means it's impossible to predict what the market will do next.
Fortunately, there are some very simple steps you can take to protect your portfolio from any more downside risk.
Here they are...
3 Steps to Take Now as the Markets Continue to Drop
[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]The first step to take immediately is to double-check your trailing stops.
"Keep your profit targets and trailing stops nice and 'tight,' meaning you're ready to harness big winners and jettison anything that rolls over," Keith says. "This is NOT the same thing as selling in advance, which is a fool's errand. What I am talking about is letting the markets play out and acting in accordance with what they're telling you, instead of guessing."
Trying to time the market is extraordinarily difficult. When investors panic-sell, they often do so once the market has already dropped considerably. They wait to try and find a new entry point, but by the time they want to get back in, the rebound has already happened.
This is the definition of selling low and buying high.
With trailing stops, you'll maintain your discipline (and profits).
Secondly, you can add gold or another "safe haven" to your portfolio. This is perfect if you'd like to make your portfolio more defensive.
If you need stability right now and can't afford to take losses on stocks, then gold is a great choice.
You don't want to put all of your money in gold, but a small allocation between 2% and 5% is a good balance to volatile stocks.
At Money Morning, we like the SPDR Gold Trust ETF (NYSEArca: GLD). It's liquid, reliably tracks the price of gold, and has a low fee structure. You get the benefit of owning gold without the inconvenience.
The third thing you can do is use the volatility of the market to your advantage.
"Most people don't think this way, but remember how the game is played. You buy low and sell high," Keith says. "So believe it or not, what you want to do is buy in on big down days, knowing full well that volatility cuts both ways."
"That takes nerves of steel, because nobody knows when the markets are going to rebound. But we do know that history is very clear that they will. It's a function of growth, not headlines."
Keith suggests keeping a list of "must have" stocks nearby at all times. Any time the market makes a big move (like it has this week), you can pounce on these stocks and get in at discounted prices.
Above all else, the main thing to remember is not to panic. There may be a ton of uncertainty in the market, but panicking is never the way to handle a situation like this.
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