“Courage is doing what you are afraid to do. There can be no courage unless you are scared.”
— Eddie Rickenbacker, American fighter ace in World War I and a Medal of Honor recipient
By now we have all come to expect the unexpected. But even with everything that has been thrown at us this year, we still don’t like unpredictability, especially when it comes to our money and investments. Because one of the major effects of the coronavirus pandemic has been increased market volatility, if you invest, you’ve likely been experiencing some worry (to put it mildly).
Yes, from the presidential election and COVID-19 to social unrest, volatility has become the norm. But rather than fearing the ups and downs, do what you can to prepare for them. Let’s discuss a few actions you can take to help you weather this storm and prepare for the next.
First, let’s talk about what you shouldn’t do. One of the most important rules in investing is to refrain from making emotional decisions. Researchers have studied how our emotions affect our investing results, especially when we chase above-average returns. A recent study revealed that investors’ decisions were the biggest reason for underperformance. Simply put, behavioral biases lead to poor investment decision-making.
Relying on an experienced professional to help you understand your options and control the risk you take with your retirement money will allow you to react unemotionally to a rising and falling stock market—instead of guessing what to do next.
Second, diversify. In the 1990s, investors placed their money heavily into the early e-commerce sites, and when that bubble burst, it birthed what is now famously known as The Dotcom Crash. Later, housing speculation and unsustainable rise in home values eventually led to the Housing Market Crash of 2008, and eventually bled into the Great Recession. If history teaches us anything, you never want to put all of your eggs in one basket.
Instead, diversify your portfolio with a combination of different investment sources. Modify your portfolio and spread your money out between stocks, bonds, funds, and investments in different sectors. This way, you can seek to minimize the impact that any one losing investment can have on your overall portfolio performance.
Third, prioritize your emergency fund. This strategy is all about preserving the wealth you’ve accumulated to this point. While cash investments may not provide a lot of growth, having a cash contingency fund with at least 6 months of living expenses will protect you against having to sell investments at low values to free up cash. Examine spending patterns and find ways to tuck away even more into cash or cash equivalents, such as short-term bonds, certificates of deposit, or Treasury bills.
Fourth, remember that you are not alone. Whether you’re new to the stock market or an experienced investor, the more you understand about the economy and how market cycles affect your financial situation, the more equipped you will be to handle these tumultuous times. Our team at the Nalls Sherbakoff Group is here to help you calm your emotions by providing you with an objective review of your portfolio and an examination of how current events affect your long-term outlook. Please reach out to us with questions or concerns.