Here’s 5 Real Things + Bonus Offer you can do Right Now to Address the Coronavirus and your Investment Account.
As the country continues its best efforts to slow the spread of the coronavirus, it seems that everywhere you turn, you cannot help but run into some article, podcast, Facebook post, television special or Tweet about the latest COVID-19 projections. We, investment advisors, are no different. In just a quick sample of my email inbox, there isn’t a single email within the last 3 weeks that hasn’t mentioned either “COVID-19” or “Coronavirus” and how to help clients address it through their investment account. Some of the common themes among these emails include:
“Here’s our fund that has beaten the S&P 500 year-to-date.”
“Buy this leveraged ETF to protect downside risk.”
“Sell this fixed insurance product to weather the current storm.”
“We offer a suite of software solutions to address market volatility.”
And so many others…that just get deleted.
None of these would help any of my clients and they likely won’t help you either.
Here’s 5 Real Things + Bonus Offer you can do Right Now to Address the Coronavirus and your Investment Account.
#1 Don’t Sell Anything
I’m not simply repeating what all financial advisors say during this time. I’m telling you that there is far more evidence in favor of not selling than there is in support of cashing in and choosing to buy back at another point in time when things “feel safer;” take a look at returns following market drawdowns. There’s one caveat to this: if you’ve been laid off and need money to pay your bills during this difficult time, that would be a reason to choose specific positions to sell to free up cash to live from.
How does this help you? Selling for selling sake is an emotional response. Many people struggle to separate their emotions from investing making it one of the single hardest things to do as an investor. When you sell, you miss rebounds. And some of the best market days are immediately following the worst days. If you aren’t invested, you’ll lock in losses without the ability to earn gains. Stay invested unless you fall into the caveat above.
#2 Understand Why Your Account Dropped in Value
Is it just your account or is it everyone else too? You likely own several investments within your account. These investments could be in the form of a mutual fund, an exchange traded fund (ETF), or a money market fund. There are many other types, but let’s focus on those three since they are the most prevalent in the typical investment account. Each of the different positions in your investment account are designed to pursue a specific strategy outlined in its governing document. This document is called a prospectus and you received a copy of it when you first bought the fund (hint: it’s that massive book you threw out a long time ago that was too big and boring to read). This document outlines the goal of the fund and how and why it invests the way that it does. You could call the fund company and request a copy and read it as you practice social distancing -or- you can take a shortcut. Head over to www.morningstar.com and enter your fund’s ticker symbol to get some quick, current data about the fund.
Let’s use an example. One of the most popular funds widely available in company sponsored retirement plans is the Vanguard Total Stock Market Index Fund, ticker symbol VTSAX. When you enter this ticker symbol in the search bar on the Morningstar website, it produces a page that shows you how the fund is invested. In this example, it’s a mutual fund that comprises of about 3,500 companies and is designed to track the entire US Stock Market.
How does this help you? If you know that the entire US Stock Market has decreased in value over the last several weeks as a result of both market panic and expectations of the future, it stands to reason that this fund would follow that same trajectory. Having this understand of why your fund decreased in value can help bring back perspective and understanding where you may not have it. Considering looking up each fund you own to gain this perspective.
#3 Understand How Each Fund in Your Account Works Together
Now that you know how to look up each fund, considering putting them together to fully understand your account in its entirety. To do this, you may need to purchase a paid version of Morningstar (costs about $200/year but there’s likely a free trial available) so you can see how each fund interacts with the others in the account.
How does this help you? Owning one total stock market fund, for example, diversifies your risk across the entire US stock market. But you can spread this risk even further. You can add other funds to see how they may have affected the recent drop in value. By adding fixed income or alternative funds that may be uncorrelated to the stock market, you can ensure parts of your portfolio don’t drop at the same rate as the general market. This is the very definition of diversification.
#4 Determine your Risk Score
The risk tolerance questionnaires in use by many firms are antiquated. There’s no other way to state this: they are terrible and do nothing to address the actual investment account level risk. They are also easy to game in that you can look at the answers and choose the ending outcome based on the range of answers. Several years ago, I partnered with Riskalyze to offer a unique scoring method to pinpoint my client’s specific risk metric. Think of it like the Sleep Number Bed System but for your investment account: you are scored between 1 and 99.
BONUS OFFER: For as long as South Carolina is under a COVID-19 State of Emergency, I’ll take this a step further and add your investments to the scoring system so you can see if your portfolio matches your risk score…at no charge. Send a quick email to [email protected] for this offer with the subject: “Limited Time Offer: Risk Matching Request.”
How does this help you? When you invest your account to match your risk score, you have a far likelier chance of staying invested while working towards your financial goals. This helps you make better investing decisions through Riskalyze’s mission: “empowering the world to invest fearlessly.”
#5 Review your Beneficiary Designations and Estate Planning Documents
An often overlooked thing about an investment account is what happens to it following your expiration. Give your custodian (the company holding your investment account) a call and ask this question: “if I die, what happens to this account?”
You may be surprised to hear that a beneficiary isn’t listed or there’s “no record available.” Paperwork at custodians gets messed up all the time; trust me, I deal with them every day. Use this time to review your Beneficiary Designations, WILLs, Healthcare Directives, and Power of Attorney appointments to ensure the correct people are listed. If not, reach out to your estate planning attorney to start the update process. If so, please be sure your documents are signed and fully executed. I can’t think of anything more unfortunate than spending thousands of dollars on an estate plan and then having unsigned estate planning documents. Unsigned documents are not executed and won’t accomplish your wishes upon your expiration.
How does this help you? Our lives change all the time and it’s important that long-term plans reflect those changes. Close family members that may be listed as a trustee or executor may not be so close now. Staying on top of these things is very important. The last thing you want to happen is the very thing you’ve planned against while having the ability to ensure it doesn’t.
During this historic time in our country where economic activity has come to a halt and when markets have struggled to find direction, it’s tough to stay motivated and focused. We hope that you can follow these 5 Real Things and take advantage of our Bonus Offer that you can do right now to address the coronavirus and your investment account.
Here at Coastal Wealth Advisors, I work with each of our clients on all the above steps – and so many more. I do all the heavy lifting for you by spending countless hours with each family to address their financial goals and risk tolerance in order to implement financial plans and manage investment accounts on their behalf. I’d love nothing more than to help you right now. I’m equipped to work virtually and am fully dedicated to helping clients through all market climates. Consider reaching out today to learn more.
Please stay safe and healthy and remember, this too shall pass.