It is hard to believe that we have been dealing with the Coronavirus for the last six months. Although the crisis caused by the Coronavirus started out as a healthcare crisis, it has grown into a financial crisis that has affected just about everyone in America and around the world. As investors, it was painful to watch as markets fell at a record pace. At the time, my advice was to stay the course. Not because I knew what direction the virus would take; but rather, my experience had taught me that crashes and market downturns are common, and that for investors, the worst time to make a decision is when they are gripped with fear. That being said, I am happy to report that as I write this column, the Dow Jones Industrial Average, the S&P 500 and the NASDAQ are all in positive territory year to date.
It’s not that I want a pat on the back for telling investors to stay the course; but rather, I think we can learn some lessons about investing. The first lesson for all of us to recognize is how resilient our markets truly are. Throughout the history of the stock market, it seems we go from one crisis to another. Whether it was Black Monday in 1987, the dot-com bubble in 2000, or even the financial crisis in 2008, we have seen our fair share of crises sand they are all somewhat unique. However, in every crisis we hear news commentators preaching that this is the “big downturn” and that markets will never recover. I am pleased to say that they have been consistently wrong. The lesson to learn is, don’t listen to the media commentators or social media influencers. Your portfolio and your investments are too important to let fear enter into the decision making process. Just as adults know not to make serious decisions when angry or emotional, investors shouldn’t make investment decisions when they’re fearful.
Another lesson investors should learn is to never sell when they do not want to. Just think if you had to sell some of your investments back in March when the Dow was in the 18,000’s. You would have taken a significant hit. The reason people are forced to sell is because they need the money. However, in the great majority of those situations, if the individual had an emergency fund of money, they would not have been forced to sell at the wrong time. That is why I want to reiterate that one lesson we should all learn from this crisis is the importance of maintaining an emergency fund. My general recommendation for most people is at least three to six months of living expenses. This money should not be invested in the stock market; rather, it should be invested either in CDs or bank accounts. The return on the investment is not what’s important, but rather, the accessibility. If the person that was forced to sell back in March could have waited, they could have seen a 50 percent return on their money in a six-month period. That is why it is so critical that we all maintain an emergency fund of money.
Unfortunately, I do not believe we are out of this crisis and I still believe markets are volatile. However, with the recent upturn in the market, investors are provided with an opportunity to relook at their portfolios and make sure their portfolio matches their goals, objectives and risk tolerance levels. As a financial advisor with over 30 years of experience, I can assure you that investors with a portfolio that matches their goals, objectives and risk tolerance levels are more successful in the long run. Remember, when it comes to your portfolio, you’re running a marathon, not a hundred-yard dash.
Rick is a fee-only financial advisor. If you would like Rick to respond to your questions, please email Rick at firstname.lastname@example.org.