Five Tips for Investing in Tough Times

No doubt the coronavirus pandemic will go down in history as a defining moment in our lives that greatly influenced multiple generations. Here are some tips on what to do when things get tough and your emotions run strong to help you stay focused on your financial goals.

Tip #1: Stick to the Fundamentals
A well thought-out plan is designed to weather market swings and volatility. The investments in your portfolio should be designed to support your long-term goals, and changing course midstream can seriously jeopardize your chances of meeting those goals. Having the discipline to stick to the fundamentals is what separates true investors from market-timing gamblers. Much like professional athletes, relying on your mastery of the fundamentals can greatly reduce your overall risk and increase your chances of achieving a favorable result.

Tip #2: Use Science, Not Speculation
How will you know when the dust has settled and it’s safe to re-enter the market? By the time you recognize the “right” time and buy back in, it’s possible the opportunity may have passed you up. Assuming you have enough liquidity, I believe your best bet is to stay invested and ride it out. However, everyone’s situation is unique. It’s prudent to seek professional advice regarding your own circumstances. By harnessing the wisdom of empirical evidence and data, you can let the power of financial markets work for you. A successful investment philosophy is powered by science, not speculation.

Tip #3: Consider Practical Steps
Nobody knows what the markets will do this week or this year. No one has a crystal ball. Market forecasts are strictly opinion and shouldn’t drive your decisions in tough times. Reviewing financial plans and determining practical steps are powerful ways to bolster your strategy. Right now might be a good time to consider tax-loss harvesting, rebalancing, changing asset mixes, adding to your portfolio, or performing Roth IRA conversions, to name a few.

Tip #4: Focus On What You Can Control
When investing, following your emotions can lead you down the wrong path. Fear will drive you to sell as the markets fall, and euphoria will compel you to buy stocks at highs. Letting your emotions control your decisions is a recipe for disappointment. To protect your wellbeing, don’t sweat the things you can’t control, like the markets or the coronavirus. Instead, focus your time and energy on the things that matter to you and that you can control—the things that contribute to your general wellbeing and peace of mind. Developing an awareness of and protecting your wellbeing can not only make a big difference in your own life, but will also improve the lives of your loved ones and the larger community.

Tip #5: Take Intelligent Risks
Stocks have a risk premium for a reason. It compensates investors for the risk they endure while investing. The secret to success is not to avoid risk, but to take intelligent risks that have historically been compensated. If you start feeling panicked about the market, revisiting your financial plan may be helpful. Review your plan and evaluate how much has changed. Is now a good time to review or update some of your goals? In a well thought-out plan, it is often the case that the current environment has less impact than you might think. PM

This is intended for informational purposes only and should not be construed as personalized investment advice. Please consult your personal financial and investment professional(s) regarding your unique situation.