Action Plan: How to Invest in a COVID-19 Environment

Action Plan: How to Invest in a COVID-19 Environment

This action plan will provide guidance on how to manage your investments not only during the COVID-19 pandemic, but beyond.

During market downturns, having a solid plan to manage your investments for both short and long-term goals is vital to building financial security and providing you with peace of mind. The following is intended to provide you with a framework that you can immediately apply so that you can avoid common investing mistakes. We hope that this will help guide you in practicing solid investing fundamentals, which can lead to reaching your short and long-term financial goals.

1.) CREATE A PORTFOLIO THAT MATCHES YOUR TIME HORIZON AND RISK TOLERANCE:

Our emotions can get the best of us. The worst thing we can do is let them take over and react to them. Now is the time to take a deep breath and break down your finances according to your long-term goals and priorities. This will serve you well both now and in the future.

  • Don’t overreact to short-term losses in your long-term investment accounts.
  • This is a good opportunity to re-evaluate your current portfolio and make sure it’s right for you.
  • Determine what your investment goals are and the time frame for each.
  • Keep money in cash for short term goals over the next 5 years and consider investing more aggressively for longer term goals.
  • For longer term goals, find a risk tolerance questionnaire and use the guidelines to create your own portfolio or simply choose a target date fund or another asset allocation fund that matches your time horizon and personal comfort with risk.

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2.) STICK TO YOUR PLAN:

Sticking to your plan and resisting your emotions is often the hardest part of investing, but by taking these steps, you will increase your peace of mind and the odds of reaching your financial goals.

  • Don’t panic sell your investments. Doing so could turn a temporary paper loss into a permanent one if you miss the recovery.
  • If you have more than one fund, see if you need to rebalance it back to your original target allocation. This will force you to buy more stocks while they’re relatively low in price or as Warren Buffett famously said, to be greedy when others are fearful.
  • If you have an asset allocation fund, it will rebalance itself for you. A target date fund will also automatically become more conservative as you get closer to the target date so you can truly “set it and forget it.”
  • Don’t stop your 401(k) contributions (make sure you’re at least continuing to get your company match.)

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3.) TAKE ADVANTAGE OF OPPORTUNITIES:

Being able to buy stocks on sale isn’t the only silver lining to a down market. Depending on how your overall portfolio has done, your need for cash, and your desire to minimize taxes in the short and long-term, a bear market provides several opportunities for many of us.

  • If you were planning to convert a traditional retirement account to Roth, this may be a good time to do so. You can pay taxes on the relatively low balance and when it comes back, the earnings can grow to be tax-free after 5 years and age 59 ½.
  • Harvest losses in taxable accounts to offset other taxes. This is a great way to turn investment lemons into tax lemonade. Just be sure not to repurchase the same or an identical investment within 30 days of when you sold it.
  • If you have lots of money in a taxable account, you may want to use it for individual stocks and other tax-efficient investments or consider working with an investment adviser who can help you manage the taxes.

Additional Resources:

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