Investing in regular times can be a challenge if you are not looking at the right information, or lacking expertise and experience. However, when our world is facing a problem like COVID-19, it can make investing even that much more problematic for an individual.
In March, the market dropped 30% from its February highs. And future performance remains volatile and unknown. Many do not expect the market to improve until we begin to see a decline in COVID-19 cases here in America and around the world. What is known, though, is that similar market occurrences have happened, and the market has always recovered. Yet, there is uncertainty on where best to allocate and handle your investments.
What not do to do: The worst thing to do in a downturn, period of market volatility, or bear market is to exit the market. The market has always rebounded – although the timing of the recovery is never known. Pulling out of the market creates stress, and the potential to miss the market rebound. Managing to time the market almost always seems futile for the average investor.
What to do: There are several strategies to implement in a personal portfolio during a market drop. One of which is tax-loss harvesting. Taxes is often an overlooked expense, but if correctly done tax-loss harvesting can offset capital gains and even some earned income. The strategy includes selling assets in your portfolio that are at a loss and then immediately reinvesting them back into similar, but different investments. The losses on a portfolio may be “realized”, while still participating in market rebound. Note: this strategy is only applicable for taxable investment accounts and would not benefit tax-managed accounts like IRA’s.
Secondly, another action to take during maket downturns is to rebalance your portfolio. Massive fluctuations in the market can affect your overall allocation. Equities may drastically drop, while bonds outperform causing an imbalance in the portfolio structure. Rebalancing keeps your portfolio in the right balance and helps you maintain discipline during stressful time.
Lastly and most importantly, remain calm and stick with the plan created before the market turbulence. Remember why the portfolio was created how it was, and trust in the long-term strategy; it will pay off!
If you’re entering the market for first time developing a portfolio that best fits your needs is the first step. By maintaining discipline, and employing certain strategies, the market downturn can become a little less stressful.
If you are looking for a wealth management investment guide, please contact Eric at (918) 727-7100.