With the economy sputtering, stocks going up, and coronavirus cases going one way or the other depending on where you live, these are some fairly anxious times.
No, let’s not be cagey about it. These are the most anxious times since most of us have been alive, and since most of our parents have been alive.
And while some are trying to paint the pandemic as a “new normal,” it most assuredly is not. It can’t be. Few of us could handle this kind of stress every day for the rest of our lives.
But we are stressed now, as a country, as communities, and as individuals. So as leadership in Washington seemingly contradicts public health experts, and as our local and state leaders make decisions which we might or might not consider wise, it’s up to each of us to keep our heads.
Maybe, in that way, things are pretty much status quo.
Try not to time the market
As you know, we’re skeptical that the currently frothy stock market will be able to defy gravity forever. The economy, as measured by GDP, is shrinking. While employment figures appear to be increasing sharply – and that really is good news – it’s kind of like picking up a $20 bill you just dropped. And predictions of how bullish or bearish equity markets might be are currently all over the map.
So now’s a good time to remind you not to panic. You have time to move your money into places where you and your financial advisor think the market will favor. And if, after you’ve placed those bets, the market takes a while to catch up to you, don’t worry about missing out on the small, short-term gains you might have seen if you timed your trades perfectly.
By the way, nobody times their trades perfectly.
Be aware of cognitive biases
We’ve written many times about cognitive distortions and how they can take money out of your portfolio.
The short version is this: Be prepared to take a small loss rather than hang onto an investment that’s heading for a big loss; don’t be caught “waiting for it to turn around.” That’s called loss aversion and, due to some odd psychological glitch, it registers more powerfully in most of us than the elation of realizing gains.
Also, don’t invest in something just because everyone else is. That’s called the “bandwagon effect” and sometimes goes by the acronym FOMO (fear of missing out). Every portfolio, like every investor, is unique. There are reasons why you have the investments you have, and they have nothing to do with what’s best for everyone else. We hope.
And don’t drive yourself crazy with hindsight. Nobody’s right all the time. Settle for being right most of the time. If you make the smart move seven times out of ten, you’re doing well. Don’t personalize one opportunity you missed or one bad bet you placed. Time moves one direction; move with it.
Give yourself a rest
The good news is, you’re not alone. There are many people with financial expertise standing by to help.
If you’re confident in your ability to make canny decisions, good for you. But consider all the decisions you’ve had to make lately.
When and what to buy and sell to keep your portfolio growing is confusing – so many decisions to be made. Then you need to decide what kind of vehicle you want to park your investments in. You can’t just say “401(k)” or “Roth IRA” or “medical savings account”. There are too many flavors of each. So that’s a whole different layer of decision making.
As if your plate weren’t already full, this pandemic has triggered even more decisions that need to be made: Take early retirement or go with Plan A? Go shopping or get stuff delivered? Get tested for active coronavirus, or for antibodies, or maybe don’t get tested at all? Even whether or not to wear a mask in public has become a decision point.
When we have too many choices to make, we stop making good ones. It’s called decision fatigue: the well-documented tendency for an individual’s quality of decisions to deteriorate after a long session of making these calls.
If you suspect you might have reached your point of decision fatigue, it’s time to consult a financial expert before taking action on your portfolio.
And if you don’t think you’ve reached that point, it doesn’t mean you haven’t.