COVID-19 has created worldwide economic upheaval and many concerns for all of us. One question I hear frequently is how to adjust your investment strategy when there’s an unusual event such as a pandemic.
Here are some tips for navigating this uncertain market landscape.
First, try not to react when markets get rocky
It’s natural to react when the market falls. We often feel the urge to stop the pain by selling. However, research suggests that giving in to those instincts can be hazardous to your wealth.[i]
If you have a financial advisor, call him or her when you feel the urge to make a quick change. A quality advisor can act as a buffer between you and an expensive mistake…use them!
Second, revisit your financial plan
If you find yourself overly stressed about your investments, that may be a sign that you’re invested too aggressively. It might be time for a change.
After decades of providing investment advice to business owners and professionals, our team has seen too many new clients come to us only after large losses. In many cases, those losses could have been prevented with upfront comprehensive financial planning. Sadly, many advisors tend to only focus on gains and seldom discuss your risks. But as events such as the pandemic teach us, capital preservation should always be your first concern, with growth second.
If you’re feeling uncomfortable, it may help to diversify into some alternative investments, which tend to move independently of stocks. The investments can act as a shock absorber to your portfolio. Or maybe you need to shift some of your growth investments into less volatile holdings, so you can sleep better at night. Especially if you are on track to achieving your goals, there may be little need to take more risk than you need to.
Third, Put Losses to Work
Looking at an account with losses is never enjoyable, but there can be an upside. You can put your losses to work to reduce your tax bill while still participating in future gains. Here’s how: if you sell a position in a taxable account at a loss, you can reinvest the proceeds into a similar (but not the same) stock or ETF in that industry, so you participate in the recovery. After 30 days, you are free to rebuy the original security if you prefer. Since there are additional rules, always work with your tax advisor so you don’t accidentally disqualify the losses.
Take-Home Message
If there’s a silver lining in the pandemic, it’s that it reminds us of the importance of planning. You’ve worked hard for your money, so it’s smart to work you’re your financial advisor to update your financial plan…to make sure your wealth sticks around no matter what the future brings.
You can also visit the Warady & Davis LLP COVID-19 Resource Center for a wealth of information on stimulus assistance, new legislation and much more. This information is updated regularly. This is a rapidly evolving situation so please do not hesitate to reach out to us; we are here to help.
1] O’Brien, Sarah. “Here’s What Can Happen If You Flee the Stock Market for Cash.” CNBC, CNBC, 2 Mar. 2020, www.cnbc.com/2020/02/28/heres-what-can-happen-if-you-flee-the-stock-market-for-cash.html.
Investment Advisory Services offered through Securities America Advisors, Inc., an SEC registered investment advisory firm. Douglas Zweig, Registered Investment Advisor Representative, CFP® , CIMA® , ChFC®
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