What Not to do During the COVID-19 CrisisSubmitted by Avenue Advisors, LLC. on July 3rd, 2020
There’s no two ways around it – the COVID-19 crisis is here to stay, at least for the foreseeable future. Even if social and medical conditions improve in the short term, there’s almost no doubt that the new bear market will remain in place through the end of 2020 (if not longer). As such, an investor like you needs to make plans to adjust their investment strategy so that you can stay afloat in these turbulent times.
However, the sudden onset of this crisis has led some investors to make moves that are sure to hurt them in the long run. While it’s had to know how any one choice will play in this bear market, there are some tried and true mistakes that even seasoned investors are making right now. These are just a few of those mistakes that you should keep in mind when speaking with your portfolio manager in the near future:
Go All in on Bonds
If you didn’t know much about bonds before, then this crisis likely gave you an opportunity to learn on the fly. These stable, government-backed investments have long been favored by investors who want to minimize their portfolio’s volatility.
The problem is, nearly every investor worth their salt has sought out some stability as the stock market’s averages dropped like rocks. As such, numerous investors have flocked to the bond market in under a month’s time. While some of them are wise to add a few bonds to their portfolio, others have gone completely overboard. That latter group will likely pay the price down the road.
Simply put, bonds can be too safe, even in a bear market. Once the stock market begins to show signs of recovery, those folks who are over-invested in bonds will be stuck with their new asset for the long haul. As such, they won’t be able to grow their portfolio’s value because they played it too safe with bonds.
Sell Off Your 401(k) Assets
Recently, some well-meaning portfolio advisors have given their clients the option of selling off some of their 401(k) assets as a way of making ends meet during this downturn. While this may feel like a smart move to ensure your own personal debts don’t pile up during this recession, you will almost certainly regret this move down the road.
This is because the vast majority of investors still have time to see their 401(k) funds recover. In particular, those who are young (relative to retirement age) and well invested in stocks/mutual funds will likely see their 401(k) funds recover as soon as the stock market enters the black once again. Only those close to retirement should consider any asset sell-offs as a means of guarantee at least some 401(k) payout.
React to Every Bit of News
Both socially and professionally, the novel coronavirus has a lot of folks panicked right now. Panic, however, is the worst enemy of investors and the investment market in general. As such, you should do your best to not buy and sell your investments with every fresh news cycle. Every day brings some change worth reacting to, but you should retain the fortitude to let that news pass you by.
Instead, try to stick to a consist investment strategy that minimizes timing the market. To do this, you can set an entry and exit time for your next investments, rather than an entry and exit price. This can help maintain consistent gains that are not tied to unexpected (and potentially unstable) growth.
Suffice to say, there are a lot of mistakes you could be making during the COVID-19 crisis. These are just a few that you may have already made while trying to react to the market’s recent bearish dive. The last thing you want to do is panic. If you have, head the immortal words of Douglas Adams and “don’t panic.” You still have time to right your ship’s course and return to calmer waters. Keep the tips above in mind and you’ll likely to feel just a bit more confident throughout this continuing crisis.
As a client, it is tough to wait and see, but you trusted this financial advisor before the market went into a crisis, why would it change during it? Simply put, trust your advisor and reap the benefits when the market rights itself.
You should look to take some time to relax; you should remember that the market always corrects itself over time; and that your financial advisor is there for a reason. Using these tools will help your overall business strategy and help you avoid emotional investing!
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