Working from home under mandatory quarantine alongside my wife and two young kids can get quite overwhelming. As my wife and I try to decide what to do and how to go about making the best decisions to get through this, it hit me: this is how investors feel right now!
Things have changed, this is not normal, it’s scary and decisions made today could impact our long-term wellbeing.
During these past few weeks, I’ve been talking with many investors about their investments, learning how they feel about the current market situation and reviewing their options.I have been taking the opportunity to highlight 3 choices investors have to help manage the current market conditions and help them feel better about their choice. Option A - The aggressive choice. For investors with the right profile: higher risk tolerance, long investment horizon and good financial stability, it’s possible that leaning into the pain of a market crash is an opportunity to put more money to work in the markets, rebalance more aggressively into stocks or both. The idea is to pick up more stocks at a low price and hope to benefit greatly from the upcoming recovery (doubling-down on the expected recovery). The risk here is that markets keep falling, things get worse and the investor ends up selling at a more pronounced loss due to unforeseen changes (timeline, fear, cash flow, etc.). Option B - The emotional choice. For investors who have a hard time dealing with market declines and unrealized losses in their investment accounts, stopping the pain of a market crash by selling their investments can seem like the reasonable choice. The idea is to move out of the market to avoid losses and put the money back to work once the crash is over. The risk here is that investors miss out on the best days of the recovery which could cost them more than the losses they tried to avoid. Missing only a few of the best days in a recovery can quickly turn a feel-good decision into a big performance drag. Option C - The rational choice. Investors who have lived through their fair share of market crashes know what to expect and have learned that staying the course is usually the best option to capture their portfolio’s expected returns and reach their investment goals over time. The idea is to trust in a portfolio’s ability to serve its purpose and deliver the good as well as the bad. Historically, markets have always delivered more good than bad. There’s a risk here is that markets take longer to recover, and redemptions need to be made at a loss, but this risk can be managed with proper planning. The choices investors make in times of market crashes can have a considerable impact on their long-term investment results. Minimizing costly mistakes that hurt investment results is the surest way to reach your investment goals. Although Choices A & B can be profitable, they are very hard to execute perfectly. Avoiding the risks of options A & B can be an investor’s best choice. This is why Option C - “Stay the Course” is the most popular with advisors and financial institutions in times like these. This writing is for general information purposes only and is not intended to provide legal, accounting, tax or personalized financial advice. If yo
u are not sure how to proceed with a request for further information seek help from a professional accountant. Any opinions expressed are my own and may not necessarily reflect those of Louisbourg Investments.
Author:
Marcel LeBlanc, CFP®, CIM® is a financial planner with Louisbourg Investments. Comments or questions may be submitted to him at marcel.leblanc@louisbourg.net