What lessons can investors learn from the Omicron Variant?

How might Omicron affect the markets

In less than a week, the COVID-19 variant known as Omicron has renewed public health concerns worldwide. The World Health Organization stated that it could have “severe consequences,” but reports from South Africa (where Omicron was first identified) suggest that symptoms have been mild. Only time will tell how severe — or not — the public health consequences will be, especially as vaccination rates rise and other safety measures are put in place.

Through all this, it’s more important than ever for investors to distinguish between public health issues —  which can be fraught with politics and strong personal beliefs —  and what’s best for their portfolios. Looking back on how typical diversified portfolios performed during the pandemic,  staying focused and disciplined in the long run is a good approach.

Chart: COVID-19 cases have once again been on the rise in recent weeks

What lessons can investors learn from the Omicron Variant

It’s generally accepted that COVID-19 is here to stay 

Like the flu or common cold, it looks like COVID-19 will be around for the foreseeable future. Unfortunately, that means that whether due to Omicron or another variant strain, it’s only a matter of time before new variants create public health concerns. Like the original COVID-19 strains and later the delta variant, these worries can escalate quickly due to the pace of infection. It’s possible for these variants to spread to multiple continents by the time they are identified, named, and appear in the news.

This time around, we’re more prepared 

At the onset of the pandemic, this exponential pace created significant challenges for everyone, not least of which was the emotional toll of isolation and social distancing. Fortunately, the situation today is quite different. Individuals and businesses alike have fresh experience and playbooks for dealing with the pandemic and there is a much better understanding of the risks. Without diminishing the public health challenges ahead, this means that there is a stark distinction between how officials should respond to the ongoing crisis and how investors should respond in their portfolios.

The delta wave that began in the summer showed that this is the case. Although infections spread rapidly, the death rate remained relatively low. Most importantly for investors, the economic and market impacts were minimal, especially when compared to the initial shutdown measures in 2020. Through that wave and the more recent uptick in cases, economic growth has been strong, hiring activity has accelerated, profits have reached record levels, and markets have continued to achieve new all-time highs.

Don’t be surprised by some market ups and downs

This is true even in the best of times, let alone when markets are at new highs and valuations are still above average. While there may be periods of short-term turbulence ahead, business cycles tend to last for many years if not decades. In the end, having a portfolio with an appropriate risk/reward balance may be the best approach to help weather ups and downs over the long term. Staying consistent and not trying to time the markets is generally a good approach.

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