6 Tips To Ride Out Coronavirus Stock Market Volatility

Well, 2020 is sure off to an interesting start. Life as we all know it is on hold thanks to the spread of COVID-19 around the world. Stock market values around the globe have been decimated on fears of what the Coronavirus will mean for the global economy. We have seen volatility well beyond normal levels. Franklin Templeton shared “Things You Need to Know to Ride Out A Volatile Stock Market.” Keep reading as we share these tips and add some insights on what else you need to be doing now.

"To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude and pays the greatest reward."-Sir John Templeton

What do you think? Are people selling despondently lately? Should you be buying more stocks now?

6 Tips to Ride out the COVID-19 Pandemic

1)     Watching from The Sidelines May Cost You

You may think selling all of your stock and bonds (or mutual funds and ETFs ETSY) is the safe thing to do. Perhaps you have even convinced yourself that this is the smart thing to do. Consider this, according to Franklin Templeton, “On average, for the 12 months following the end of a bear market, a fully invested stock portfolio had an average total return of 37.1%. However, if an investor missed the first six months of the recovery by holding cash, there would have been only 7.6%.” 

“Going back to 1930, if an investor missed the S&P 500’s ten best days in each decade, total returns would be just 91%, significantly below the 14,962% returns for investors who held steady through the downturns.” -CNBC, March 7, 2020

2)     DOLLAR-COST AVERAGING MAKES IT EASIER TO COPE WITH VOLATILITY

If you are sitting on a massive pile of cash, you may be asking yourself, “Is Now A Good Time to Be Investing in Stocks?” For the rest of us, dollar-cost averaging (DCA) makes it easier to answer the question of should you be investing now? The answer will almost always be YES. Ok, I can hear a few of you asking through your computer screens, “What is dollar-cost averaging?” DCA is when you put a set amount of money away regularly into an investment or investments. If you have a 401(k) plan at work, you put money in every paycheck; you are dollar-cost averaging into that retirement account.

With DCA, you will buy more shares when prices are low and fewer shares when prices are high. Over time, that should result in a lower cost per share, which is less than the average price per share. Franklin Templeton pointed out that DCA does not guarantee a profit or eliminate risk. That being said, it does help reduce the likelihood that you will make a considerable investment into stocks right before a significant drop in the current value of your holdings. 

“Investors bold enough to invest in stocks during the dark days of the Great Depression would have seen their stakes grow tenfold by 1957.” -Marketplace, January 5, 2009

3)     NOW MAY BE A GREAT TIME FOR A PORTFOLIO CHECKUP

Now is a great time to review your investments and your various financial goals. I have fielded a slew of calls from people who were panicked during the recent drop in stock market values. Many of them were handling their own investments; others had lost faith in their current financial advisor. What they had in common was the realization that what may have done well for them during the recent 11-year bull market was not holding up during the COVID-19 pandemic.

After reviewing their portfolios, I discovered things like unnecessary fees, a lack of diversification, and, sometimes, over-diversification. One person who thought he was well-diversified owned five different S&P 500 Index Funds. There is a good amount of diversification merely owning an index fund, but there is not further diversification from holding multiple funds tracking the same index. To matters worse, he held the funds at five different companies, which added to his fees and made tracking everything more of a hassle.

Even the best portfolio can use a little tune-up every so often. You may need to adjust your contribution amounts in order to take advantage of higher retirement plan contribution limits for 2020. The current market volatility may provide you with some excellent tax-loss harvesting opportunities. For those who don’t utilize automatic rebalancing on your accounts, it may be time to reset your investment allocations to match your current goals and time frames.

4)     TUNE OUT THE NOISE AND GAIN A LONGER-TERM PERSPECTIVE

Logging in and checking your investment account balances 20 times a day will not help your investments do any better. In fact, the more you check your investments, the more likely you are to panic and sell at just the wrong time. It can be hard to ignore news about the stock market. These days we are bombarded with the 24-hour news cycle, not to mention annoying alerts on our iPhones and social media posts about the market’s performance.

Which is more important? The stock market’s performance right now or where your retirement accounts will stand when you are ready to retire? Yes, the markets are down year to date, but do you think they will be higher by the time you retire? I am confident they will be higher, likely much higher, by the time I retire. Of course, I love being a financial planner, so I may never retire. Using my full retirement age of 67, I have decades of future stock market growth to help me achieve and maintain financial freedom. If I’m still working at 80, you will know it is because I want to be, not because I need to.

5)     BELIEVE YOUR BELIEFS AND DOUBT YOUR DOUBTS

The coronavirus is scary. Our lives are being changed in ways most of us have never seen before. From what I’ve seen, the people who have long-term financial plans, own well-diversified portfolios, and are still able to earn an income are much better positioned to ride out this storm. Even among those who have lost their incomes, people who have a financial plan and are prepared for when life happens are going to have a much easier time bouncing back from the COVID-19 lockdown. Franklin Templeton suggested, “When put to the test, you sometimes begin doubting your beliefs and believing your doubts, which can lead to short-term moves that divert you from your long-term goals.”

“Never let a good crisis go to waste.”

-Winston Churchill

6. THE VALUE OF PROFESSIONAL ADVICE

The value of fiduciary financial advice grows exponentially when times are tough. Franklin Templeton asserted, “We believe investors can benefit from the expertise of a financial advisor who can help you define your goals and needs, then identify investments that meet your financial objectives.” In the best of times, your financial planner could seem like an accountability coach, marriage counselor, and money guide all rolled into one. When crap hits the fan, the best financial advisor will help you stay the course and make sure you stay on track for your most important life goals when your instinct may be to bail out and hoard toilet paper and cash under your mattress.

Often, volatility is enough to scare a few people out of their investments here and there. The never-ending news about Coronavirus / COVID-19 will likely cause many people to panic and leave the stock market as well. If you follow these Six Tips to Ride Out The COVID-19 Pandemic, you, hopefully, can find the strength to stay on track for your financial goals. This, too, shall pass. It is just a matter of when and how you react.