If you have been watching the stock market lately, you can be forgiven for feeling dizzy because it has never behaved quite like this before.
On Monday the S&P 500 fell 12 per cent, its biggest ever one day fall, which followed a drop of 10 per cent last Thursday.
Shares aren’t the only asset class crashing, the oil price and cryptocurrency Bitcoin have more than halved this year.
Your head may be spinning but you must not panic. Stock markets have suffered bouts of volatility before: on Black Monday in 1987, during the technology crash in 2000, and the financial crisis in 2008. And they recovered, in the end.
You need a cool head to navigate the uncertain days ahead, so here's what to do.
Watching your portfolio crash is always uncomfortable, says Mark Chahwan, co-founder and chief executive of Dubai-based robo-adviser Sarwa, especially for first-time investors, but this is a natural part of investing.
Today's crash is extreme but nothing new. “The market will recover and move upward, maybe much faster than you think,” he says.
This is a good time to assess your attitude to risk, though. "If you are panicky right now, then maybe high-risk investing is not for you,” he says.
Younger investors can take more risks. "The probability of losing money drops the longer you stay in the market. If you are, say, 35 or 40 years old, you may not need to touch money for decades, and the market drop will have no lasting impact,” says Mr Chahwan.
If you have cash to spare, this is an opportunity to buy shares at reduced prices, as those shares will increase in value when markets finally go up, he adds.
Nobody can say for sure when the market will recover but history suggests when it does, it will take many by surprise and the resurgence may come sooner than you think, although volatility is likely to persist.
Interest rate cuts and fiscal spending should eventually restore confidence, says Mark Haefele, chief investment officer of global wealth management at UBS.
“We expect the market to end the year much higher than today, with China's economy leading the way to recovery, and the US and European economies rebounding in the third quarter,” he says.
There may be a light at the end of the tunnel with new cases in China and South Korea slowing, says Fawad Razaqzada, senior market analyst at TradingCandles.com. “With interest rates slashed and quantitative easing in operation, equities could stage a sharp reversal as soon as the virus outbreak in Europe dies down,” he adds.
Investors could snap up superior blue-chip companies operating in growth sectors such as e-commerce, cloud computing and digital payments, says Vijay Valecha, chief investment officer at Century Financial in Dubai.
He tips Microsoft, Google-parent Alphabet, Amazon, Visa and Mastercard, while suggesting you avoid the travel sector, restaurants, entertainment, brick-and-mortar retail stores, and high-yield bonds. “As interest rates plummet and transport demand is likely to be curtailed, banking and energy shares are better avoided, too," says Mr Valecha.
Low-cost exchange traded funds (ETFs), which can be bought quickly and cheaply like shares, could be a good way to play current volatility.
You could keep it simple by buying a global equity fund such as the popular Vanguard FTSE All-World UCITS ETF, which gives you diversified exposure to more than 3,000 companies around the world.
More sophisticated investors could use ETFs to hedge against volatility, Mr Valecha says: “Velocity Shares Daily 2xVIX Short Term ETN provides investors with the opportunity to trade on the underlying market volatility, and is up more than 100 per cent over the last week.”
However, a sharp recovery would quickly reduce its appeal.
During a crisis investors typically rush to buy safe haven bonds, pushing up the price and reducing yields.
Yields plunged after the US Federal Reserve slashed interest rates to zero on Sunday night, with US 10-year Treasuries offering just 0.73 per cent on Monday, down from 1.88 per cent at the start of the year.
However, investors are wary of corporate bonds, as they fear for the financial health of the companies issuing them, and prices are falling.
Low interest rates have driven a significant expansion of corporate debt, especially in the US, where around half of all bonds have been issued by riskier triple-B rated companies, says Ryan Lemand, senior executive officer of ADS Investment Solutions in the UAE. “If they are downgraded as the economy slows, many institutional investors will be forced to sell, hitting prices,” he adds.
Mr Valecha suggests cautious investors put their money into solid US Treasury bonds, issued by the government: “The iShares 7-10-year ETF received around $600 million (Dh2.2 billion) worth of inflows last week, highlighting the relative allure of fixed income today.”
Bizarrely, traditional safe haven gold dropped for six consecutive days, before rallying slightly on Tuesday. After peaking at $1,700 an ounce last week, it has slumped to $1,508 at the time of writing.
Investment funds have been selling gold to take profits, buy stocks at a discount, or return cash to investors, and Mr Razaqzada warns of further sales. “With the precious metal not responding how you would expect, more pain is on the way for gold bugs," he says.
Yves Bonzon, group chief investment officer at Julius Baer Group, says consider buying gold for diversification as the price drops. “We feel more comfortable accumulating some towards $1,500, as compared to recent highs close to $1,700.”
Mr Valecha recommends the SPDR Gold ETF, which has seen around $2bn worth of inflows this year.
The idea that cryptocurrencies can act as digital gold in times of crisis has been destroyed, as investors flee risk, sending Bitcoin crashing from $10,367 in mid-February to just $5,153 at the time of writing.
Cryptos have miserably failed their first real test, says Mr Bonzon. "Crypto promoters wanted us to believe that in times of crisis they would be a modern equivalent of gold as a safe haven, yet Bitcoin has lost more than twice as much as the S&P 500."
Bitcoin’s high volatility will continue, but it should also recover, says Fabian Chui, global head of front office and risk at ADS Securities. “Government stimulus packages may boost its claim to be an alternative store of value to traditional fiat currencies," he adds.
Oil is facing a perfect storm, says Matt Weller, global head of market research at Gain Capital, with crude "facing arguably its largest demand shock in history from the pandemic-induced shutdown of commerce across the globe, while Saudi Arabia and Russia drastically ramp up supply".
With West Texas Intermediate trading below $30 a barrel, the near-term outlook is bleak, but it could rebound. “As the price falls below the cost of production, higher-cost drillers will be forced to shut down operations, decreasing supply,” adds Mr Weller.
Shares in London-listed oil majors like BP and Royal Dutch Shell have halved in just two months, but they are trading at bargain prices while yielding an astonishing 12.48 per cent and 14.34 per cent respectively. Those dividends could come under pressure, but this is a tempting entry point for those who can stand the risk.
Meanwhile, mining stocks have recovered lately, boosted by global stimulus and hopes that China may soon be over the worst.
Russian steel producer Evraz jumped 17 per cent in the first two days of this week, while globally diversified miner Rio Tinto climbed 11 per cent.
'Selling up is the worst thing you can do'
After learning his lesson from previous stock market crashes, Alex Ortiz, from Spain, is resisting the temptation to sell, while continuing to drip-feed monthly sums into the market.
He is worried that less experienced investors will panic and sell up. “If you haven't been through a market correction before it can seem scary, but you have stick to your plan and keep a long-term view."
At 43, the management consultant has seen plenty of stock market volatility, including previous health crises over Sars and Mers, as well as the 2010 eurozone crisis, and now the Covid-19 sell-off. “I reacted to the first two by selling up and trying putting my money elsewhere, but that was the worst thing you can do,” he says.
Investors should resist the temptation to time the market, whether selling in a panic or going bargain hunting when shares fall, he says. “Stick to the plan and don't change direction. In the longer run, the market goes up around 70 per cent of the time.”
Mr Ortiz, who has lived in Dubai for nine years, invests a regular monthly sum in a globally diversified spread of Exchange Traded Funds (ETFs), which means he benefits when shares fall as he picks up more stock that month.
“I just continue doing that, and if I have some extra cash, then I double down on the buying."