Insights on Investment Strategy During the Coronavirus Pandemic

As investment professionals, we must maintain an external perspective outside of the panic and the headlines, one that centers back to making sure that our customer’s strategy and investments align with their short and long-term financial needs.

Those who keep calm and carry on, and those who maintain a strategy based upon their unique needs, circumstances and time-horizons instead of emotionally responding to the constant noise coming at us, should continue to be rewarded.

Here are a few things that investors should focus on during market volatility: 

  1. Continue your regular contributions

Do not discount the impact that volatility has on investment accounts, but focus on the opportunities that it provides. Most employees make regular contributions through their paycheck. They are essentially buying into the market at a variety of price points. As markets go down, they are continuing to buy and buying those investments as if they were on sale. As the markets go up, the value of those purchases increase over time.

In essence, suspending or stopping contributions into a retirement plan is similar to choosing to pay full price for a new pair of shoes instead of using a coupon. 

  1. Recognize the importance of a diversified portfolio 

The last several weeks have been a friendly reminder of the importance of a well-diversified portfolio. No matter how aggressive or conservative an employee’s investment strategy is, bonds are an essential part of every portfolio. Bonds act as a shock absorber, decreasing the impact of stock positions, which tend to fluctuate to a higher degree and at different times than bonds.

Working with an advisor to evaluate your risk level and make sure that your stock to bond ration aligns with your financial goals and time until retirement is always a good idea.

  1. Avoid emotional investment decisions 

The wake of COVID-19 and the economic uncertainty that is following the pandemic, is bringing a lot of fear-based choices, making it is easy to fall into a mindset that is driven by fear. Remember that making emotional investment decisions based on gripping headlines is disadvantageous for investment strategies.

Volatility, as we have recently experienced, exemplifies why you should work with a financial advisor to build a plan and investment strategy that is ‘all-weather’ in nature. It is their job to help you avoid emotional decision-making on investments and focus more on your individual situation.

By letting the fundamentals of your situation drive your decisions, you can stay focused on the long run and what is right for you over time instead of the current, short-term headline.

The Impact of an Investor Partner During the Coronavirus Pandemic (7)

 

But what if you haven’t met with a financial advisor yet and you are worried? 

The best reaction to market returns is often no reaction. That is in part because the best days are often clustered around the very worst days of the market.

For example, if you look at the returns of the S&P 500 between January 4, 1999, and December 31, 2018, you will find that six of the best ten days occurred within two weeks of the ten worst days. Being out of the market for even a few days at the wrong time can have a significant impact on returns.

It is a financial advisor's job to help investors see past the scary headlines and to the fact that markets have and will continue to be volatile, especially around uncertain situations such as the coronavirus. The best way to stay focused on the future and work towards long-term investment goals is to find a financial advisor to help diversify your strategy, build an ‘all-weather’ plan and help avoid the mistakes of emotional investing.

The material and opinions provided in this document are meant for general illustration and/or informational purposes only and should not be construed as investment, tax, or legal advice for any individual. Although the information has been gathered from sources believed to be reliable, each reader must decide whether it is valid and applicable to his/her own unique circumstances. To determine which investment(s) may be appropriate for you, consult your financial adviser prior to investing. Any economic forecasts made in this commentary are merely opinion, and any referenced performance data is historical. As a result, neither is a guarantee of future results, as all investments involve risk. All referenced indices are not managed and may not be invested into directly. Investment advice offered through Resources Investment Advisors LLC, an SEC-registered investment adviser.

James Battmer on March 18th, 2020

Posted by James Battmer

James Battmer currently serves as Chief Investment Officer for Resources Investment Advisors. In his role, James is responsible for providing executive oversight of the firm’s investment strategy and execution, in addition to overseeing all institutional and high-net-worth client accounts. James has 20 years of experience in the industry, his experience lies in macroeconomic policy, fixed income management and equity selection. Prior to joining Resources Investment Advisors, James previously worked at UMB Bank and Morgan Stanley.

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