Chances are, if you have investments, you’ve asked yourself this question once or twice over the last couple of weeks. Less than a month ago, the S&P 500 was at an all-time high at 3393 on February 19th. As of 10:30 this morning (3/12/2020), the S&P is trading at 2528. That is a drop of 25% in less than four weeks. If you go back to the beginning of the year, the S&P is down 22%. Depending on who you listen to, you could get advice to sell everything and put your money in the mattress. You also could hear that when the market is down, it’s a great time to buy, but what do you buy? In times likes these, EVERYONE is an expert, just go on Facebook for 2 and a half minutes. There you will find the next best investing tip as well as an “expert” opinion on the Coronavirus outbreak and the exact steps we should take to contain it.
Since I am not a medical expert, I will not give you my opinions on the recent health scare. Since I do work in financial services, I will give you some tips on what to do in times like these. My first is to be an advocate for yourself. Ask questions, be proactive, and have a process. It is much easier to make money in the stock market, or lose less, by advocating for yourself and being proactive. If you are always reacting to what is happening after it has happened, you’ve most likely missed the boat. Investors need to be proactive to avoid losses as significant as this. Having a process allows you to remove emotions from the decision-making process. Generally, when emotions get involved, bad decisions are made and you end up worse off than making no decisions at all!
My company uses investment research that goes against the grain of what we call ‘Old Wall Street’. To keep it a simple as possible for this blog, the research we use measures and maps the changes in inflation and corporate profits. These indicators have been signaling a global recession since the end of 2019. Most of my clients have had a significant chunk of their assets in treasury bonds (up 15% YTD) and gold (up 2% YTD). Now we certainly hold other investments that have lost money in the last three weeks, but our risk management process has held up pretty well. It goes without saying, that just because we have done well this year, does not mean that we will do well going forward. All I am saying is that we have a process and it is what helps us make decisions without being emotional.
If you work with a financial advisor, when was the last time you asked him/her what his/her risk management process was? Does he/she even have one? If you do your own investing, what process do you use to keep emotions out of the decision making process? If you don’t have answers to these questions, you NEED to get them. Just because your investments are down does not mean it’s best to stick your head in the sand. Be an advocate for yourself and this roller coaster ride will become a lot less emotional.
If ever you want to talk about your investments and how we can help manage the risk in your portfolio, please feel free to reach out. I love to talk about this stuff, and if we can mix in a cup of coffee too, it makes it that much better!