Now that the market is tanking because of the coronavirus (COVID-19) outbreak, a lot of people are wondering what they should be doing with their investments. In Part 1, we talked about having a solid financial plan in place that can transcend any market conditions. In Part 2, we wanted to discuss further questions that people have had: namely, should they be concerned?
Don’t Overreact to Market Downturns
The immediate answer to that question is that yes, you should be concerned. When it comes to your money, you should always be concerned. There is a difference, however, between being concerned and being overly reactive when it comes to taking any actions on your portfolio.
Despite the drama of the stock room that we see on TV, with investors shouting “Buy, buy buy!” when the market takes a downward turn, the important thing is having a plan and remaining calm.
Ask Your Investment Advisor
Emotions should not be a driving factor in investments and portfolio decisions. In practice, remaining calm means that you shouldn’t do much with your portfolio when markets are volatile. That doesn’t mean that nothing should be done, however. It’s important to discuss your options with your investment advisor, whether it’s AllGen or someone else. Ask your financial advisor what they are doing so you can make the right choices.
Have a Defensive Portfolio
Typically, when stocks are going down, other assets are going up. At AllGen, when we build portfolios, we build them with non-correlated assets. There may be stocks, bonds, and commodities. In times like this, stocks are going down, but bonds have gone up quite a bit. Gold has also gone up, too. AllGen is positioned defensively and we try to look for indicators that we see on the horizon that might predict the market may go down.
Make Sure Your Portfolio Is Balanced
When the market does take a downturn, we sell, but not stocks. We sell the bonds that have gone up and then take a portion of that to put into stocks in order to rebalance the portfolio. That selling and buying is done constantly over time. We also do the opposite when the positions are reversed. When stocks are up, we sell to buy bonds at lower rates.
Some recommend rebalancing quarterly or annually. AllGen doesn’t necessarily agree with that, because rebalancing on a schedule can miss the behavior or movement of the stock market that would necessitate buying or selling. AllGen prefers to be proactive and to do what the Wall Street Monitor recommends, which is to sell high and buy low.
Don’t Make Fear-Based Decisions
While some action during a market downturn is recommended, it’s important not to make decisions from a fear-based, knee-jerk reaction. Just because the market’s down doesn’t necessarily mean that you need to sell. It’s also important to remember that AllGen and other financial advisors are actively working behind the scenes to monitor clients’ accounts and protect them.
We work to rebalance the portfolio and to ensure that it is diversified with non-correlated assets. That way, over time, your account can weather these storms, which will help ensure peace of mind.
Don’t let this keep you up at night. Obsessing over the market is what we do!
Give us a call if you have any questions. We’re here to serve.
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