Coronavirus: Should I Buy or Should I Sell?

Michelle Barron |
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Are you concerned about the current pandemic and market uncertainty? Do you have either the fear of not taking the proper investment precautions or the fear of missing out on market opportunities?  Both fears are real and can be present in investors today.  Over the last couple of months, both concerns may be valid even for the same investor.

Many are familiar with the broad-based definition of fear, the unpleasant feeling associated with danger. Typically, things like a fear of heights, or the fear of snakes come to mind. The current global spread of COVID-19 has even highlighted the fear of getting sick. Commonly heard from our kids, fear includes the fear of missing out (FOMO), which can be defined as a fear of regret. Over the last several weeks, many have gone from having the fear of the financial impacts and bear market to the fear that investors are missing out on once in a lifetime investment opportunity.  Never during my 20+ year career have I seen a better example of both concerns within such a short time.

Making investment decisions based on either of those fears can lead to poor long-term results. For example, during the last few weeks of March, when the market was at its most recent lows, the fear of widespread stay at home orders and its effects prompted some investors to sell securities when prices were low. If selling at a loss isn’t enough, those same people missed out on the current rebound and are trying to figure out how to get back in, when prices are higher. Investors can end up doing the exact opposite of what they want and fall into the sell low and buy high trap. The broad-based market bottomed on March 23rd, and despite the remaining economic uncertainty, the market continues to make up losses. As markets start to rebound, greed kicks in, and some investors fear they will miss the bargain basement low prices. Instead of making investment decisions based on these emotions, we believe it is important that you are making your selections based on both a solid understanding of your goals and the investment risks rather than speculation after watching market trends.  Jumping on an investment bandwagon does not guarantee long term success.

We think Fear and greed shouldn’t be the motivating force behind your investment decisions.  Both emotions have helped drive the recent markets, and stock charts now resemble the paths of some of our scariest roller coasters. Here are three things you can do to help get you off the coronacoaster and in a position to make informed investment decisions. 

Only invest money that you do not need in the short term.

For many short term probably means twelve months or less; however, in the financial planning world, I consider short term five years or less.  Markets are unpredictable and not just during global pandemics.  Investing money, you need within the next five years puts you in a position where you may have less money than expected.  Planning for needs, allows you to ride out market volatility and hopefully helps prevent panic and anxiety when markets are not cooperating with your plan.  Just think about your current situation.  If the recent stay at home order and market correction put you in a position where you were wondering how you were going to cover your expenses, you were probably feeling some pressure. On the other hand, those who had a plan to cover those expenses without having to sell securities at significant discounts probably had a lot less anxiety and stress.

Diversification

I am sure you have heard the advice, don't put all of your eggs in one basket.  Over time the markets have given us plenty of examples that exemplify the importance of diversification, yet the number one question that everyone still asks is, "What should I buy?" Everyone always wants a hot stock tip when, in reality, they should be buying many things across different asset classes.  Proper diversification allows investors to have investments that react differently at any point in time and during any economic condition.  Diversification does not guarantee that you will not lose money, but it does help investors achieve long term goals. Either create a diversified portfolio or find a mutual fund or an exchange-traded fund (ETF) that will provide diversification for you.

Stay focused on what matters

During any crisis, many people think that this time is different.  With the unique economic and healthcare crisis, I can’t argue that we are in unprecedented times. I still believe long-term sound investing principals remain the same. Market volatility smooths out over time. Rather than focusing on the fear of what may happen or what you may be missing out on, focus on what you can do and what you can control.  I believe that by having an actual plan in place, limiting media that can increase our emotions, and staying focused on your long-term goals can help you overcome emotional decision-making driven by either fear or greed. 

As I adjust to coming back into the office, it is hard to ignore the stark differences we have witnessed within the last several months and the emotional roller coaster of investor emotions. I also can't help but believe that Americans are resilient; creativity is born during a crisis, and the core principals of investing remain intact.

If you are unsure about your investments or your financial plan, now is a good time to talk with a certified financial planner professional. If you are looking for a fee-only financial advisor, the advisors at River City Wealth Management offer a no-obligation complimentary consultation.  Schedule an appointment here or call the office at 904-374-9098.