Investment clients at Davidson & Watson Financial can rest assured that we are well aware of the anxiety that comes in times like these. Although this Coronavirus pandemic is a uniquely troubling situation in many ways, this stock market situation is not unique. Recessions and stock market volatility are part of the economic cycle. And yet the stock market has always continued to grow, over time. Recessions have always recovered, in time. By focusing on time and diversification, we have prepared for this.
- You are prepared for this.
- Your risk is reduced.
- You will not react emotionally.
- You have options.
Each of our investment recommendations places funds that you may need as income in the coming 2-3 years in safe and accessible investments. As you approach retirement, larger percentages of your funds are allocated this way. Those funds are invested in bonds, CDs, Treasury notes, or cash equivalents where they are protected from the fluctuations of the stock market and can be available to you when needed. This allows time for your investments in the stock market to recover and allows you to leave them alone in times like this. Every investment recommendation we provide further reduces your risk through diversification. We provide diversification between fixed income, commodities, and the market. Just as importantly, we provide diversification within the stock market. This is why we never recommend investments in any one company, but instead recommend index funds or a variety of sector funds. Your investment eggs are always in hundreds of different baskets. Those who react emotionally to the stock market inevitably end up selling low and buying high. This happens because we naturally fear loss more than we enjoy gain. Behavioral psychologists call this “loss aversion bias” and it is well-documented. By having awareness of this bias and focusing on your long-term goals, you are able to act counter-intuitively. If you have funds that will not be needed in the next few years, now is the best time to invest more heavily in the stock market and wait for the inevitable recovery. If you find yourself unexpectedly needing funds, we will work to find the best possible option for you. We will find the best path to provide for your needs and protect your long-term investment goals. Do not hesitate to call if this is your situation.
My recommendation is for you to pay as little attention as you can to the stock market headlines. Trust that you have time and diversification on your side. Call if you have questions. Most importantly, take care of yourself and those around you, especially those who are most vulnerable in times like these.
Jeremy Watson, CFP®