In Part 1 of making the most of COVID-19, we will discuss how to make the most of your investments.

  1. What to do when markets take big twist and turns
  2. What actions you should take

In part 2 next week we will discuss maximizing your life during this time.

Making the most of your investments

  • Stay in the market. As John Bogle would say “Stay the course”
    • Your plan should be prepared for market downturns.  We never know when or why or how but we do know they will happen from time to time.  We also know we will come back on the other side of this.
    • It is understandable to be a bit scared, frustrated, mad (a mix of emotions) when markets make some violent twist and turns.  Important to keep in mind that the market is not going to go down to nothing though. No matter who is out there saying it. It is not good for you or anyone your around for you to think to that extreme.
    • Before you get to that extreme.  Ask yourself what would have to happen for the market to get down to nothing (zero)?  Keep in mind that were talking about thousands and thousands of businesses that would have to fail to make that happen.
    • But the value of my stocks have gone down? 
      • You know as well as I do though you only lose that money when you sell though.  Stay the course. Stick to your plan in good times and in bad. Expect that markets will go down. 
    •  I’m retired what am I supposed to do?
      • Goes back to having a good plan in place prior to markets going crazy.
      • Why you have good quality bonds to get you afloat until stocks recover.  Lets look back at 08-09. Stocks went down 30-40%.  High Quality bonds – made up of corporate and government debt in all maturities went up about 5% during 08-09.  High quality bonds are up during this most recent crisis as well. Intermediate one up about 3% and short-term up about 2%
      • High quality bonds don’t own any junk bonds aka high yield bond
    • Want to have a couple years worth in high quality bonds to keep you afloat in times like this.  That money is there to supplement your other income from potentially a pension, social security, etc.
    • What if I didn’t have a good plan in place prior to this?  Or I am not sure?
      • I would be reaching out to a good quality advisor that will provide an unbiased analysis of your situation.
    • Be fearful when others are greedy, and be greedy only when others are fearful.” – Warren Buffet
    • You want to play the game that offers you the best chance to win. 
      1. Own entire markets (diversify your risk)
      2. Feed those markets (dollar-cost averaging)
      3. Not letting your fear or greed take over 
      4. Stay ahead of inflation (stocks)
      5. Keep your costs and taxes as low as possible (no-load index mutual funds in and outside of retirement accounts)
      6. Own some high quality U.S. bonds (reduces portfolio volatility)
      7. Practice buy and hold through it all. 
      8. KEY POINT TO REMEMBER. There are about 25 days during the year where the market provides most of its returns. The only way to capture those returns is to be in the market at all times. STAY IN THE MARKET.
      9. Over the 20-year period between 1996 and 2016, a substantial portion of the total market’s return came from only a handful of days. And as no one can know ahead of time when such days will occur, trying to trade into them, or in anticipation of them, can mean missing out on steep upward moves.
      10. Per an analysis by Calamos Investments, $10,000 invested in the S&P 500 SPX, -1.51% at the start of 1996 would’ve grown to $43,930 by the end of 2016, assuming the investor took a buy-and-hold strategy. That’s a strong annualized return of about 8.19%, although that return is below historical averages, given that period includes both the dot-com bubble bursting and the financial crisis. Miss the five best days of that period, however, and the amount you’re left with shrinks by more than a third, to $29,145, which represents annualized gains of 5.99% from the initial $10,000. The more “best days” you’re not invested for, the worse off the end result looks. If you missed the top 30 sessions of that 20-year period, in fact, you would’ve lost money, with your initial $10,000 investment shrinking to a little over $9,000.

Call to Action: 

  • Review your plan.  Is it good? Why or why not?  
  • What have been your actions or inactions during this time?  Why?
  • What have been your emotions? Recognize them.  Write them down in the moment so you can look back.

Resources:

Calamos Investments

Your Money and Your Brain by Daniel Zweig