Once Piece of Advice I Give Clients in the Era of COVID-19

In my 20 year career I have often been asked for advice on where to invest and what to buy. Having lived in a growing economy, that was the norm. Depending on where we saw the economy in any given year, it was the financial industry, such as when our new president took office. Other times it was the non cyclical consumer goods industry, such as when the 2008 economic crisis hit. 

But today, during this global pandemia, it is different. I am being asked not so much what to buy, but what to do. And the answer is not so obvious this time.

To have a universal answer that will apply to all is impossible. Imagine your portfolio is cut by 50%, can you stomach that? If the answer is no, it does not matter what I say about long term investing, Markowitz theory, or historical market turnarounds. If you are not 100% comfortable, you will never stop doubting the decision.  

This is why my one piece of advice is to think about the consequences of your decision in 2023.  But there are some basics you should consider when taking this advice.

Ensure You Have Enough Liquidity

Not only in your savings account, but in fixed income instruments that will preserve their price plus or minus 5%. This way, you can have certainty over the amount you will hold in your hand. With this liquidity, you can cover your basic living expenses such as your mortgage, cell phone, electricity, water, food, and insurance. 

If your family depends on one income, a six month fund is best, and 3 months if you split expenses with a spouse.  This is step one in the answer to the question about what to do. If you do not have an emergency fund, sell from your investment portfolio to raise the amount you need.

Ensure You Understand the Investment Advice

In these turbulent times, listening to your financial adviser and blindly taking their advice about buying or selling without understanding the why will confuse you more. Always ask for an explanation and some education.  

For some, now is a wonderful time to buy stocks. Most of my clients who have financial independence want to use this opportunity and the drop in prices. This is especially true for those who have their investment in purpose driven funds and separate living (preserving) from distribution at retirement (growing).

Truly Understand Your Risk Tolerance

Imagine how selling a large percentage of your portfolio will affect you three years from now. Or how about if you buy stocks at a discount? It helps to imagine the decision in 3 years because like the COVID-19 virus spreading curve, over time, the volatility of the falling market will flatten.  

The answer is simple, what can you tolerate and when will you feel more financial peace? Will you feel better knowing you did not lose anything because you did not sell? Technically you only lose when you sell. Or, perhaps you’ll feel best knowing you won because you sold some stock that was at 300 but you got rid of it at 220 before it tanked to 150 and were able to still walk away with gains or doing a combination? Selling just a percentage? 

What I did was use this opportunity to sell some of my stock in the industries that I knew were going to have a longer period of recuperation such as energy, cruises, and the auto industry. I kept or considered buying stocks in industries that will turn around faster or experience larger demands like healthcare and technology. 

Overall the piece of advice is to stay the course, but the course YOU DEFINE. Don’t let others tell you what to do – truly understand what you can tolerate and its consequences.  Looking at 2023 and the ray of light of a future world that is not in crisis will help you make the decision.

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