March 17, 2020 | By fischer |
Not long ago, some investors had yet to experience what it was like to weather turbulent markets. Even those who had, might have forgotten how scary it can be. This concerned us.
Well, guess what? In case you haven’t noticed, scary days have arrived, thanks to the concern over how coronavirus might impact our global economy. As we draft this update, headlines are reporting the biggest weekly stock market losses since 2008.
As usual, we won’t predict whether the current correction will deepen or soon dissipate. But what was good advice in mild markets remains even better advice today.
Of course, we continue to advise against trying to react to an unknowable future. But we also are aggressively looking for ways we might be able to help clients make lemonade out of this week’s lemons – such as through disciplined portfolio rebalancing or opportune tax-loss harvesting.
If we can be of assistance in any way, we hope you’ll be in touch. In the meantime, here are 10 things one can do right now while markets are at least temporarily tanking.
1. Don’t panic (or pretend not to). It’s easy to believe you’re immune from panic when the financial sun is shining, but it’s hard to avoid indulging in it during a crisis. If you’re entertaining seemingly logical excuses to bail out during a steep or sustained market downturn, remember: It’s highly likely your behavioral biases are doing the talking. Even if you only pretend to be calm, that’s fine, as long as it prevents you from acting on your fears.
2. Redirect your energy. No matter how logical it may be for someone to sit on their hands during market downturns, the “fight or flight” instincts can trick one into acting anyway. Fortunately, there are productive moves one can make instead – such as all 10 actions here – to satisfy the itch to act without overhauling your investments at potentially the worst possible time.
3. Remember the evidence. One way to ignore self-doubts during market crises is to heed what decades of practical and academic evidence have taught us about investing: Capital markets’ long-term trajectories have been upward. Thus, if you sell when markets are down, one may be more likely to lock in permanent losses than come out ahead.
4. Manage your exposure to breaking news. There’s a difference between following current events versus fixating on them. In today’s multitasking, multimedia world, it’s easier than ever to be inundated by late-breaking news. When you become mired in the minutiae, it’s hard to retain your long-term perspective.
5. Revisit your carefully crafted investment plans (or make some), if you have one. Even if you yearn to go by gut feel during a financial crisis, it may not be in your interest to do so. Having a personalized investment portfolio, carefully allocated to various sources of expected returns, globally diversified to dampen the risks involved, and sensibly executed with low-cost funds managed in an evidence-based manner may help endure such a market. What if you’ve not yet made these sorts of plans or established this kind of portfolio? Then these are actions one may consider to take.
6. Reconsider your risk tolerance (but don’t act on it just yet). When you craft a personalized investment portfolio, you also commit to accepting a measure of market risk in exchange for those expected market returns. Unfortunately, during quiet times, it’s easy to overestimate how much risk you can stomach. If you discover you’re miserable to the point of breaking during even modest market declines, you may need to re-think your investment plans. You may start planning for prudent portfolio adjustments, preferably working with an objective advisor to help you implement them judiciously over time.
7. Doubling down on risk exposure – if able. Market downturns can be opportunities to buy more of the depressed (low-price) holdings that fit into your investment plans. This can be with new money, or by rebalancing (selling appreciated assets to buy the underdogs). This is not for the timid! Buying holdings while other investors are fleeing in droves. But if can do this and hold tight, one may be well-positioned to make the most of the expected recovery.
8. Tax-loss harvest. Depending on market conditions and your own circumstances, you may be able to use tax-loss harvesting during market downturns. A successful tax-loss harvest lowers your tax bill without substantially altering or impacting your long-term investment outcomes. This action is not without its tricks and traps, however, so it’s best done in alliance with a financial professional who is well-versed in navigating the challenges involved.
9. Revisit this article. There is no better time to re-read this article than today, when yesterday’s practice run is no longer an exercise but a real event. Maybe it will take your mind off the barrage of breaking news.
10. Talk to us. We didn’t know when. We still don’t know how severe it will be, or how long it will last. But we do know markets inevitably tank now and then; we also fully expect they’ll eventually recover and continue upward. Since there’s never a bad time to receive good advice, we hope you’ll be in touch if we can help.
The information contained this newsletter is intended for the use for education purposes only. Dissemination, distribution or copying of this message is strictly prohibited. This information should not be construed as investment, tax or legal advice and may not be relied on for such purpose. Fischer Investment Strategies, LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. If you are interested in working with us, please contact us at (805) 418-7686.