It appears that a meaningful amount of both panic and hysteria in the last few days reflects a rapid rise in investor uncertainty. Uncertainty means that investors will demand a higher risk premium — and, thus, lower asset prices — even in a world where a recovery is inevitable when the COVID-19 virus threat is diminished and the virus is relegated to perhaps a run-of-the mill endemic strain. Even with this “novel” threat facing human behavior, hundreds of years of market history tell us that the current spate of volatility and uncertainty will be dispelled.
However, the time it will take to do so is unknown. In the meantime, investors should expect that markets will potentially experience bouts of volatility over the next few months, and the ultimate time frame for markets to find new levels to attract buyers cannot be foretold.
When fear and uncertainty find their way into headlines, investors should remember these six things:
1) Breathe, Don’t Panic — Making rash decisions during times of emotional stress often has negative consequences in the future and can potentially threaten long-term financial goals.
2) Separate Fact from Opinion — With thousands of “expert” voices in earshot, it’s important to help clients focus on the facts when reviewing stories on the market and the economy in the press.
3) Remember the Long-term “Why” — Why are your clients investing for the long term? Commonly, the reason is to set aside some current assets and income for future needs. Has that changed?
4) Discuss Fears and Concerns — You can help your clients navigate the short-term emotional swings of personal finance. The more you discuss their angst, fears and concerns, the more you can tailor your professional guidance to their specific situation.
5) Know Their Needs — Investors should always know their needs for their money. If they need to use some of their investment assets in the short term for a major purchase or living expenses, it’s wise to reassess where those monies are located and what they are invested in.
6) Stay Diversified* — When appropriate, a well-diversified portfolio can often alleviate concerns about being invested in the right place at the right time. Properly allocating your assets among various asset classes and diversifying their portfolio among several investment vehicles are meant to provide them with an efficiently diversified portfolio strategy that reduces volatility.
*Asset allocation/diversification of your overall investment portfolio does not assure a profit or protect against a loss in declining markets
Watch as Martin Landry, Director of Portfolio Management at Avantax, provides an update and recounts the top events that have affected the market and economy in the last several weeks.
Martin E. Landry, CFA, CFP®, CAIA, CIMA, CTFA, CIPM, AIF
Director, Portfolio Management Group, Avantax Wealth Management.Martin Landry is the manager of the PMG and a senior portfolio manager at Avantax, where he oversees the planning, execution and success of the PMG, a role that includes implementing the IMS Select and RMS Select Portfolios discretionary model portfolios. Martin has over 20 years of investment experience. He began his career at Avantax in 2010 and previously served as an investment due diligence analyst and a portfolio manager prior to stepping into his current position in 2016.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. This commentary should not be considered a solicitation or offering of any investment product. This commentary is for informational purposes only and should not be construed as investment advice.
Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s Initial and ongoing certification requirements.