Wall Street is still buzzing about the U.S. Federal Reserve’s March 3 response to plummeting markets and a weakening economy amidst the coronavirus threat, slashing benchmark interest rates from between 1.50%-1.75% down to 1.00%-1.25%.

The U.S. stock market took a dive in the hours after the Fed announcement, with the Dow Jones Industrial Average falling by 700 points in heavy trading for the rest of the session. As of March 4, the Dow was back up 550 points in early trading, as tensions eased and the media’s attention shifted to Super Tuesday and former Vice President Joe Biden’s strong showing among Democratic primary voters, but the volatility continues.

A Risky Scenario for Retirement-Minded Investors

What should long-term investors – especially retirement investors – think about the Fed rate cut and the angst among traders in a volatile U.S. stock market?

Specifically, should Main Street investors jump in with both feet and radically alter their investment portfolios with the coronavirus, or Covid-19, hanging over their life savings? Or should investors stay cool and play the long game with their retirement money, knowing that the coronavirus hysteria will abate as the health care sector deploys a full-court press on the virus, which has taken 3,000 lives across the world to date?

The consensus among investment experts is to limit their moves to any “low-hanging fruit” market opportunities stemming from the rate cut. Aside from that mindset, keep leaning on a long-term investment philosophy even as the virus expands into more countries.

“A long-term investor should be revisiting their portfolio and viewing this as another catalyst to potentially be buying at a discount, especially with dividend-type or dividend-growth equities,” said Daniel Milan, managing partner at Cornerstone Financial Services in Southfield, Mich. “With rates as low as they are this is a screaming buy opportunity with equity yields being so much higher now than treasury rates.”

Milan does see a distinction between “long-term investors” and “retirement investor,” with the former more aggressive and the latter less aggressive in the current trading environment – especially older investors already in their golden years.

“For an investor in retirement, I would suggest being less apt to making revisions to their investment portfolio,” he said. “Hopefully those investors are living off of their interest and dividends and are not going to be forced into selling assets to generate cash income at these depressed levels.”

If that’s the case, most likely the dividends or interests retirees are currently receiving are higher than anything they could get on the market if they were to buy something now. “Thus, it’s prudent to stay the course with their current income strategy,” he noted.

Staying the course is the preferred option for retirement advisers in a highly choppy and unpredictable stock market.

“The best advice on what to do during market uncertainty is nothing — continue with your current investment plan,” said David Ragona, Director of Retirement Operations at Human Interest, a full-service 401(k) provider for small- and mid-sized companies. “If 200 years of stock market history is any indicator, it’s likely that investment markets will rebound from negative news and price declines.”

Retirement investors should realize that short term events and market turmoil are “here to stay” and remember “to keep any money you need in the next five years” out of the stock markets, Ragona said.

“Is your 401(k) holding money you’ll need in the next five years? Probably not,” he noted.

Know What You Can Afford to Lose

That’s not to say long-term investors should ignore their portfolio over the next few weeks, experts say. The key is to know where you stand and what you can afford to lose in the financial markets.

“If you can’t weather a drop of 20 to 25%, you should not invest in the stock market,” said Robert R. Johnson, a professor of finance at Creighton University and the co-author of the book “Invest With the Fed,” which examines asset class returns and sector returns in various monetary policy environments. “As none other than Vanguard founder Jack Bogle said, attempting to time the market is “fool’s gold.”

After about 50 years in the investment business, Johnson said he “doesn’t know of anyone” who has timed the stock market successfully and consistently.

He pointed to the JP Morgan Asset Management's 2019 Retirement Guide for guidance on the the effect of market timing.

“Looking back over the 20-year period from Jan. 1, 1999, to Dec. 31, 2018, if you missed the top 10 best days in the stock market, your overall return was cut in half,” Johnson said. “If you were fully invested in the Standard & Poor’s 500 for that 20-year time period, your return was 5.62%. But if you missed the 10 best days the return was only 2.01%.”

“And if you missed the 20 best days, your return was actually negative,” he said. “Consequently, the opportunity cost of a market timing strategy is quite high.”

Short-Term Opportunities Are Available – Just Accept the Risk

If you’re a long-term investor and want to venture forth into financial markets that are absorbing lower interest rates, you do have options – and some areas to avoid.

“The two sectors that benefit from lower interest rates would be dividend growth stocks and the real estate sector,” Milan said. “Dividend growth works because the dividends are much higher than the treasury yields, with the added benefit of being taxed at the lower dividend rates compared to taxed at ordinary income interest rates.”

“Real estate is more attractive in this environment, because of attractive yields and the fact that real estate is considered a more defensive sector during volatile markets, like we are experiencing right now,” Milan said.

One sector to avoid right now is financials, as banks take a hit in a lower-rate environment.

“The financial sector is now a risk as low rates inevitably hurt the profits of banking institutions,” Milan added. “We’re already seeing that play out.”

Milan said it’s “difficult” to move out of bank holdings now, if it is something an investor already owned, as you would be selling out at a fairly low price point. “It may be most prudent to just hold on throughout the ride, if you own bank stock or funds,” he said.