(Bloomberg Opinion) -- There is an old joke about a trader who hears a talk about the horrors of heroin addiction, covering areas from how many addicts there are to how desperate they are to get the drug and how difficult it is to discourage them, either by treatment or punishment. The trader raises his hand and asks, “Who makes the needles?” This is a who-makes-the-needles column. 

Your main concern about the coronavirus should be its effect on human lives. But there’s a good chance you may survive the pandemic, in which case you’ll care about your finances. So it’s worth taking some time to think about what to do about them from a risk management point of view. My usual advice is not to watch the markets every minute. Pick a sensible long-term strategy that has a good chance of meeting your goals and that lets you sleep soundly at night, and only track it for possible adjustment every three months to 12 months.

But the stock market just had more variance in three weeks than in the previous four years combined. All your sector exposures have changed more  than an aggressive active manager would do in a year. If your allocation was 60% to stocks and 40% to bonds at the beginning of the year, you now probably now have more money in bonds than stocks.

There are four big unknowns for investors. First, how long and deep will be the reduction in economic activity from social isolation? Second, how much money will the government spend during that period, and how will it deal with the increased debt afterwards? Third, what will be the long-term public health impact? Fourth, what permanent changes will result?

The first unknown isn’t really an issue for most investments. The total amount of toilet paper people are going to use over the next five years does not depend crucially on either the virus or the economy. This is true for many things. If people are buying more now, they’ll buy less later. If they are buying less now, they’ll buy more later. Our economy has the capacity and flexibility to supply demand. Total wages are falling due to layoffs and furloughs, but when demand comes back, the lost wages will be restored.

There are exceptions. Cruise ships may take a long time to recover, if ever. There could be long-lasting effects on travel and hospitality, and energy use as well. People who are streaming movies today instead of going to theaters are probably not going to make up for the missed evenings out. While sales of clothes and cosmetics will likely pick up, there’s probably a permanent loss from the weeks or months people spent without much need to dress up. But as long as wages rebound, augmented with government payments, people will find things to spend money on.

Therefore, it makes sense to look at your portfolio with an eye toward what may suffer permanent losses from worse-than-expected pandemic severity, what is likely to make up any losses, and what might stand to gain.

In terms of the second question, government action is two-sided. Lots of spending on relief payments to individuals and bailouts to industries will soften short-term investment losses and stimulate demand. But it will cost at least $1 trillion dollars in the best case for the U.S., possibly several times more that amount. That brings up specters like inflation, defaults or massive tax increases—likely targeted at businesses, Wall Street or wealthy people. Any of these could weigh heavily on investment returns.

So think about what happens to your portfolio if there is a massive, short-term drop in spending with government response capped at $1 trillion dollars, and what happens if the government spends $3 trillion and either pretends it didn’t or tries to get it back.

The third question of long-term public health impact is not a concern. It seems unlikely the coronavirus will have a significant impact on overall life expectancy. But if it does, either through a very high death toll, or surviving in high fatality form either in periodic outbreaks or endemic survival, it will change economic calculations about insurance, pensions, healthcare and taxes as well as how people live their lives. Since this is a who-makes-the-needles column, I’ll point out that bad humanitarian news is good news for the investors who survive.

Finally, what are likely permanent changes? Expect an acceleration of a number of trends. More of life will move to the Internet. Traffic is up 30% as a result of the virus, and that’s likely to prove a permanent bump. Work-from-home and the “gig” economy will expand. It was happening anyway, and lots of people will adopt it by choice. Education, especially college, will never be the same. Supply chains will shorten and get more robust, making the economy a bit less global. There will be more support for, and acceptance of, government planning.

The world has changed. We don’t yet know exactly how or how much, but we do know it’s enough that a portfolio that was optimal in 2019 is unlikely to be optimal today. I don’t recommend guessing the future, but it’s wise to ask if the bets you have today are the ones you would make if you were building a portfolio from scratch. My guess is the answer is no.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Aaron Brown is a former managing director and head of financial market research at AQR Capital Management. He is the author of "The Poker Face of Wall Street." He may have a stake in the areas he writes about.

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