Insights

My Portfolio Took a Hit – Now What?

COVID-19 has caused wide-spread emotional and financial strife, and seeing one’s savings and investment values drop substantially can be alarming. This situation may cause some “do it yourself” investors to make rash investment decisions. Without worrying about what decisions “could have” or “should have” been made before the market downturn, the most productive actions are to analytically evaluate the present situation, and to make logical choices moving forward.

Because of the emotional strain of managing one’s own investments in a market downturn, proper wealth management is often superseded by unsound, emotional decisions and therefore, professionally curated investment policy statements are crucial to one’s ability to achieving his or her financial goals through a market downturn.

Three Basic Actions

Because the last major recession had not occurred in over a decade, the market led investors into a false sense of security. This complacency lent many investors to get caught off guard by the correction, as many gaps or inefficiencies were found in their own financial plans. Generally speaking, investors tend to take three basic actions during and immediately following a recession: sell, hold, and buy securities.

1. Sell – This is probably the most instinctive human response to a market downturn. To “stop the bleeding,” many investors decide to cut their losses and explore alternatives. As investors sell (or continue to sell), there are certain cases where it is sensible to liquidate certain assets in a down market because they need the income from their investments. However, selling in a down market can also put tremendous strain on one’s portfolio. Selling at a loss without allowing the asset to reappreciate in value can lock in losses that may then be more difficult to recover as the market stabilizes. In addition, the guesswork of when to get back in the market typically paralyzes individuals into non-action and they sit on the sidelines missing out on market rebounds.

2. Hold – Holding on to depreciated securities is one of the hardest investment decisions to make. In many cases, it is also one of the best decisions to make. However, after a market downturn, it is still critical to evaluate the holdings themselves to see if they are of the appropriate mix and quality needed. It is far too simplistic to argue that “if you bought something you should hold it.” It is equally irresponsible to recommend an alternative path forward because each person’s financial situation is unique. Investors should reevaluate their risk tolerance, time horizon, and overall goals and utilize the opportunity to align their portfolio with their long term objectives.

3. Buy – Warren Buffet once said that “Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, reach for a bucket.” The proverbial “bucket” refers to one’s ability to invest more money in the market post-drop. Like any retail sale, items (or in this case, securities) are being sold at a discount relative to their price just a couple months ago. One could then buy more “items” than before with the same purchase amount. However, investing in the market comes with risk and it is necessary to make certain that one can and should invest. Investors with the means should carefully evaluate any additional investments made during this period, and should strongly consider professional advice before attempting to enter such a volatile market.

Learn from Mistakes

No matter the strategy, the smartest investors will learn from their past mistakes and change their behavior going forward as needed. Our unprecedented bull run led so many into a false sense of security with their investments. This downturn serves as a reminder that there is risk in investing and that proper planning and management is crucial to ultimately achieving one’s financial goals. Without losing sight of those goals, the prudent investor will maintain a proper investment policy statement and make informed, strategic, unemotional decisions.

The Bottom Line

In the same way a sick person would seek licensed medical attention, a prudent investor will solicit wealth management guidance and advice. In today’s unique economy, professionally created investment plans are critical to achieving one’s financial goals. Professional guidance is a wise and reasonable step forward toward financial health during this understandably stressful and difficult time.

Contact a qualified financial professional to discuss your goals and a proper investment strategy to achieve them.

BGWA.2020.34

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Investment advisory and asset management services are offered by investment adviser representatives (IARs) through Burnham Gibson Wealth Advisors, Inc. (Burnham Gibson), a registered investment adviser. Burnham Gibson IARs are also, separately and apart from Burnham Gibson, registered representatives who offer securities through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC, as well as agents who offer insurance and annuity products through AXA Network, LLC, which conducts business as AXA Network Insurance Agency of California, LLC in California, and as AXA Network Insurance Agency of Utah, LLC in Utah. Please note that any Burnham Gibson IAR holding the QKA (Qualified 401(k) Plan Administrator) and/or the CPFA (Certified Plan Fiduciary Advisor) professional designation does so only in his or her capacity as an investment advisory representative with Burnham Gibson and entirely outside of AXA Advisors and AXA Network. Neither designation reflects any AXA Advisors/AXA Network investment advisory or other service or product offering. AXA Advisors and AXA Network do not provide ERISA fiduciary, tax or legal advice and are not affiliates of Burnham Gibson. Individuals may transact business and/or respond to inquiries only in state(s) in which they are properly qualified.

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BGWA.2018.51
PPG 138586 (8/18) (Exp 8/20)