Our lives are profoundly impacted by defining moments. No doubt the coronavirus pandemic will go down in history as a period that greatly influenced several generations. Times of crisis require clear, succinct, non-negotiable actions to navigate volatile situations and markets. In this day and age of immediate gratification, investors want profits and want them now—but they should remember that the very definition of speculation is the forming of a theory or conjecture without firm evidence.
Evidence-based investing (EBI), on the other hand, is a highly disciplined approach to investment management. As one of my favorite quotes from Warren Buffett cleverly states, “The stock market is a device for transferring money from the impatient to the patient.” Here are some ways to maintain your sanity during this crisis.
Stay the Course
If you have constructed a well-thought-out plan and designed it properly to support your long-term goals, making changes midstream can have catastrophic results. It has been proven time and again that no one can time the markets. True investors have the discipline to stick to the fundamentals and follow an evidence-based approach. During this time, rebalance your portfolio and look to harvest losses where you can.
Stick With Logic
No one likes what is happening currently. Your emotions are real, and they can easily overtake logical reasoning. If you start to feel panicked about the market, revisit your financial plan and evaluate how much has changed. In a well-thought-out plan, it is often the case that the current environment has less impact than you might think.
Exit vs. Re-Entry
If you decide to exit the market, how will you know when to enter back in? Research shows that most will exit at the wrong time and enter back in at the wrong time, causing permanent damage to their long-term plan. A successful investment philosophy is powered by science, not speculation. If you rely on the data and tested academic research, you can sleep better at night during a market downturn.
I advise that everyone should have three to six months of expenses in a safe, short-term investment such as a savings account, money market or one-year CD for emergency purposes. If you have the liquidity, take advantage of the planning strategies the CARES Act allows, such as stopping your RMDs for 2020.
While we can’t control the direction of the markets, times like these do present solid long-term opportunities. Reviewing financial plans and determining practical steps are powerful ways to bolster your strategy. Right now might be a good time to consider strategies like tax-loss harvesting, rebalancing, changing asset mixes, adding to your portfolio and performing Roth IRA conversions, to name a few. Consult with your financial advisor or tax professional to determine which strategies may be appropriate for your individual situation. PM
Daryl Dagit is the manager and financial advisor in the Peoria office of Savant Capital Management. He can be reached at (309) 693-0300.