Investing Tips in a Time of Crisis

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I have seen it all, or at least I thought I had.

But this current financial/health outlier-black swan event is one in which there are no easy answers as to the pandemic’s impact on our world or domestic economies, or the very survival of our health care system.

So amidst this world of unknowns, we share some tips and advice to weather the financial fallout of this storm.

Advice for young and mid-career physicians

If you are in the accumulation phase of your career, nothing has changed. Unless this is the end of our financial systems as we have known them, and that is highly unlikely, the companies in which you have invested and loved are now at fire-sale prices. This makes them good investments, provided you are going to hold them long-term. Just keep saving and investing as you have been.

Uncertainty is the last thing Wall Street wants to see. In fact, uncertainty is the last thing any of us wants to see, especially when it comes to our health or financial security. We have, as a team of financial advisors, witnessed more than 3 decades of ups and downs in the market, and just about every geo-political event imaginable.

But this downturn, as severe as it has been, is something that we have not seen before. It is disconcerting, to say the least, to watch your investment holdings lose up to 30% of their value in one week. However—and, yes, there is a however—even though we have not seen this particular rapid spiral into a bear market and possible recession, we know how things have turned out in the past: things always come back and advance further. This should be no different, since banks are strong and the government is giving its full accommodation to both the virus and the financial markets.

We have witnessed firsthand over the years that fear is the most dangerous emotion when it comes to investing. The feeling of watching your portfolio grow each year is pleasant, but it does not match the intensity and pain of watching your investments lose value. Presuming that you had a good financial plan and your exposure to stocks was not more than the absolute minimum risk you had to assume to achieve your financial goals, just stay the course.

You must remember that your stock portfolio represents a long-term strategy; so, do not sell because of fear. Selling after a large decline in the markets is turning a paper loss into a real loss.

Then comes the problem of getting back in before the markets turn upward, possibly as fast as they went down. This is the age of computer trading and things happen very fast, as we have experienced; this particular downturn may well be the fastest and most severe to date. It gave few investors a chance to trim their holdings, since the markets went down considerably in just 1 week.

For those retirement-ready or already retired

For those ready to retire or in retirement, reviewing your budget is essential. Specifically, it may be a good time to divide your expenses between essential and discretionary. Essentials such as food, mortgages, property taxes, utilities, car payments, and the like, must be paid. The discretionary side would be anything not essential, such as eating out, gifts, travel, and so forth. When you calculate the essential and discretionary costs, you can divide each number by your investment net worth, find what the percentage is, and stick to a budget that does not exceed this percentage.

As your portfolio goes down or up, and if the percentage is higher than planned, you may want to cut back on your discretionary spending until the portfolio has recovered. This will preserve principal and address the danger of creating a vicious cycle of depleting your savings when your withdrawal percentage keeps increasing as the portfolio value declines.

There are other strategies to consider. Some examples would be tax-harvesting losses by switching positions on the same day, thereby not missing a possible market upturn, but locking in future loss carry-forwards. Also, repositioning portfolios that previously had too much increase to consider a move because of capital gains. There are many positive moves to consider while we are experiencing these depressed markets.

Of course, it is imperative that you consult with a tax professional before making any changes.

The authors are owners and principals of Grande Financial Services Inc., in Oakhurst, New Jersey.

This article is courtesy of our top-rated sister publication, Medical Economics.