Investing Wisely During a Global Pandemic
To date, 2020 has been one of the fastest moving and unpredictable years we have all witnessed and been apart of. With economies shut down for the greater part of March and April, Spring has gone by seemingly quicker than years past. Working from home and using Zoom has become the norm and stocking up on toilet paper is at the top of the headlines. But even during the midst of a pandemic sweeping the globe, economies and markets continue to move faster and more violently than ever. So, what can you, the retail investor, do to not only take advantage of the fast-moving market, but come out on the other end of this more financially in shape?
Do not underestimate the value of cash. We preach the importance of “bucket 1”, or an emergency fund, every single meeting we have with clients. Even though it sits in a bank account yielding you almost no income, its importance in the success of a financial plan is paramount. In times where the stock market drops 30% within weeks, it gives you the ability to pounce and make an investment off recent highs. If job loss strikes or cars break down, it gives you the ability to provide for your family during these stressful situations. No one predicted a global pandemic, but those who went into this pandemic with 6 months’ worth of expenses saved up were the most prepared. They were able to swallow job loss and unexpected expenses without tampering with 401(k) balances and selling out of the stock market and affecting long-term financial plans. The bottom line is saving cash can help ease the anxiety of the unexpected (even a global pandemic).
Textbooks tell us not to let our emotions get the best of us while investing in the stock market. The truth of the matter is investing is emotional. Even though we try not to let those emotions impact our investments decisions, those emotions are still real and should be acknowledged. Feeling uneasy about where the market is headed after a 20% correction? Talk to us. Wondering how this is going to impact your projected retirement date? Talk to us. Have a loved one lose a job and you are wondering if you have enough funds to support them? Talk to us! Our relationship with clients is just that: a relationship. Talk to us when you have any sort of question and concern to let us help you navigate the emotional road of investing and financial planning.
Zoom out your perspective and take a deep breath. Right now, there is a lot of concern about where the stock market will go next week or timing that investment perfectly to make sure to hit the bottom exactly right. At the end of the day, these decisions have a small impact on the overall financial plan. Tackle these decisions with patience. It is near impossible to time the market perfectly, at the top or at the bottom. Spend some time focusing on the goals you have laid out to accomplish over the next few years. Are you spending enough time with those you love? Do you need to finally schedule that family vacation and step back from work for a few days?
If you are trying to put some money to work while the stock market is down, do it strategically. Also, do it knowing that you will probably lose a little before you gain. As mentioned, it is nearly impossible to time a bottom perfectly. However, make striking points of when you want to invest your funds. Let’s say you have $100,000 to invest. Instead of going all in at once, space it out. Invest $20,000 every time the market is down another 5% off its recent highs. This is called dollar cost averaging. This allows you to take advantage of drops in the market without beating yourself up for buying at a higher price. The same goes for if the market is rising. If you feel like you missed the road down, make a rule to invest at least every 30 days. That way, if the market continues to stroll upward, you won’t miss out on the entire ride up. Dollar cost averaging helps take away the stress of making sure you time your invest perfectly. It allows you to focus on the bigger picture of getting money to work for your benefit over the long term.
There’s always more money to be made and more work to do. Take this global pandemic and use it as an opportunity to make sure your goals in life exceed and go beyond that of just a dollar sign. Focus on those you love, spending time with them and making memories. Being wise about investing in the stock markets lies deeper than timing an investment right or adjusting allocation. Being wise in the stock market is rooted in patience and a bigger perspective.
This market commentary is provided for information purposes only and is not a complete description of the securities, markets, or developments referred to in this material. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results.
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