What to Do with Those Investments in Times of Crisis

by David@MoneyNing.com · 33 comments

investing during the coronavirus

My friend said to me the other day:

“I sold all my holdings in the 401k a couple of weeks ago. What do I do now that the Dow just went up 11%? Is this the bottom?”

Editor’s Note: Scratch that… it’s up another 15% since that text from him for a 25%+ move!

I replied, “I don’t know. In fact, nobody knows. Everyone will have an opinion on whether we are at the bottom of market valuations, and a ton of them will turn out to be right. But you can’t act on that information alone because no one knows who’s prediction will come true in advance.”

What I do know, though, is that moves you make now can significantly affect how much of a nest egg you will end up with. Studies have shown that people who tinker with their portfolio end up making costly mistakes, but we are humans after all.

If you already sold out and can’t quite figure out how to get back in, or simply scared out of your mind that you still own stocks, then here’s what you need to do:

investing coronavirusFirst, you need to be honest with yourself. No one really knows how this will play out because the virus will dictate how long we are shut down and that, in turn, will dictate how much of a hit our economy will take. Plus, no one can ever perfectly time a stock market bottom.

Are you willing to hold onto your portfolio mix even if it tanks another 30%, 40%, 50%? Or are you going to capitulate at the wrong time and cash out at what could be the ultimate lows? Do you even have the ability to ride out a storm?

What if you lose your job after the market falls another 20%? Do you have an emergency fund to ride out a period of low or even no income without touching your equity portfolio?

On the flip side, are you going to chase the market if you see the indexes shoot up 10-20% in a matter of days? The answers to these questions will dictate how much equities and bonds you should own.

Accept that you will make mistakes if you are going to tinker with your portfolio whenever volatility is high. The key, if you are going to trade, is to minimize the damage the mistakes cost you.

Whatever move you make, can you afford the consequences if your decision turns out to be a disaster?

Everyone’s need, ability and willingness to take on risks is different. Do you have too little in bonds? Too much? Now that you have a taste of volatility, you are much better equipped to answer this question.

Come up with a plan over the weekend. Don’t do it during market hours because you want to make logical decisions while the market isn’t jumping up and down trying to distract you.

While we are at it, make the plan in a quiet room. Lay out specifically what you are going to do if certain conditions are met to ensure that you don’t make rash decisions just because you read some article online in the heat of the moment. When are you going to sell, if ever?

A reminder: Again, staying the course and not market time gives the average investor the best odds of success, but if it’s inevitable that you will be shaken out of risk assets whenever markets make a swan dive, then at least figure out, ahead of time, a systematic way to sell that makes sense financially.

On the other hand, when are you going to buy back in if you have cash on the sidelines? Are you buying at a predetermined frequency, say, once a month?

If so, then work out a schedule ahead of time. For example, you could choose to buy 20% at 10am every first Wednesday of the month. You could, instead, buy once every time you get a paycheck.

You might decide that you want to wait until everything blows over.

If you are going to wait, what conditions will need to be met before you deem it clear skies? Is it when the infection rate curve is definitely flattening? Or is it when the whole country lifts the lock down orders?

If you don’t come up with a plan before you make your trades, then you will be paralyzed by second guessing yourself whenever the markets are back to swinging violently.

You will also be more likely to start buying on a big up day because you are afraid of missing out, only to sell everything when it goes down because you are afraid of losing everything.

Now, people do this all the time and it’s already very costly during normal times, but the effects are magnified at least ten fold these days when even indexes are making 10%+ daily moves.

Write everything down and stick to the plan. Once you decide what steps to take, it’s imperative that you follow through. Do not deviate from your plan!

You have to remember at all times that each action step was written when you were least emotional about your assets. This is your best chance of success. Take advantage of this.

Reassess your plan when your situation changes significantly. Avoid the danger of tinkering with your plan needlessly, but update it whenever your need, ability, and willingness to take on risks changes.

For example, losing a job you thought was bulletproof will affect your ability to ride out volatility, while receiving a windfall will increase your ability to deal with a prolonged downturn but at the same time decrease your need to own high growth wild swinging equities.

Look. The market is extremely volatile these days, and your emotional trades could cost you big time. For those who can’t honestly stay the course, it’s vitally important to come up with an action plan to limit the damage that your trades will make to your long term financial health. Otherwise, the moves you make now could seriously jeopardize your future.

Editor's Note: I've begun tracking my assets through Personal Capital. I'm only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it's much easier to figure out when I need to rebalance or where I stand on the path to financial independence.

They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it's free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.

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{ read the comments below or add one }

  • Beau W. says:

    The best plan is to keep investing as before. Im going 50/50 plan. Also getting I bonds. Perfect time. Robert Kessler is correct. Look at Garbage company stocks.

    • David@MoneyNing.com says:

      Good for you to have a solid plan Beau.

      Even better that you are able to keep at it even in times of panic. I-bonds seem like a good hedge just in case we get hyper inflation in the future due to the crazy increase in money supply from the Fed.

      Btw, what do you mean by garbage company stocks? do you mean service companies that deal with garbage? Or do you mean companies that have their stock price trashed recently?

      • Beau W. says:

        I was referring to waste disposal stocks. Waste Connections, Waste Management, Republic services. They always do really well. Sorry about the mix up. I just read that Waste Connections is a good company for growth.

        • David@MoneyNing.com says:

          Ahh I see. I checked out Waste Management and the stock has indeed done well in recent years, even with the recent 20% haircut.

          But aren’t these stocks more like utilities where there’s not much growth? Or do they grow because housing supply grows and there are more paying customers through time?

          • Beau W. says:

            Im believe more housing means more customers. And they have been buying out smaller disposal companies. There is a good article posted this week on Seeking Alpha about Waste Connections.

          • David@MoneyNing.com says:

            I see. I’ll look into them some more. Thanks for the suggestion!

    • Beau W. says:

      You betcha. I love doing research on businesses operating around town.

  • jim says:

    agree with michelle here. stay the course and ride the wave(s)? it comes down to “do i have the stomach for this”? if you are retired, can you take another body blow? this isn’t a bubble popping. this is something altogether different. i seem to recall a newsletter suggesting the advantages of bank deposit rates at 1.8% and the goal to be maintaining.
    lets agree that there is no way one can plan when the nation and markets are in chaos mode.

    • David@MoneyNing.com says:

      It’s hard to argue with Michelle’s logic there. And I gotta admit, it’s been way tougher to stay the course this time around than even the Great Recession.

      But I imagine it’s equally tough to be out of the market when a week like this past one goes by where everything is zooming up too.

      These savings accounts with 1.8% is a good place to ride this out. Thanks for the reminder that there are other vehicles to park your money other than stocks and bonds.

      Buying high and selling low just happens all too often. Whatever you decide you do, it’s mighty important to stick it out no matter what because no one really knows in advance what asset prices are going to be in the short or even medium term.

  • Joe on the Move says:

    I still have a bunch of cash on the sidelines. I hope it goes down so I can buy more.

    • JD says:

      The economy might get worst but I don’t think we will retest the lows with the Fed pumping so much money into the market.

    • David@MoneyNing.com says:

      Studies have shown that if you have a long time horizon, you should keep buying steadily and stick it out long term, ignoring the prices along the way.

      You can thank me when it’s time to retire and withdraw your hard earned nest egg!

  • Steady Jerry says:

    I’m so glad I was able to hang on. Pick an asset allocation you can stick with and keep buying through the thick or thin!

    I’m buying again tomorrow once my paycheck hits my account. Yay!

    Cheers!

    • David@MoneyNing.com says:

      Good for you!

      Investing is simple but incredibly hard at times because you have to keep your emotions in check.

      Oh and just FYI, you will need to wait until Monday to buy because markets are closed tomorrow for Good Friday.

  • Ahhhh says:

    I can’t believe the market shot right back up so quickly. I sold out almost at the lows and have so much cash I don’t know what to do… Can I really stick to this DCA plan of yours? Ahhhhhh!

    • David@MoneyNing.com says:

      Repeat after me – I will keep buying back into the market through the thick or thin until I’m at my carefully thought out asset allocation plan.

      Yes I will and yes I can!

  • WILLIAM VANCE says:

    The market has recovered a lot this week, but I fear some bad news will send it back down. There have been some real opportunities to play the market and see 100% returns on some stocks in just a day or two, but you could also loose your butt gambling. I agree that you should really plan things out for the long-term and stick to your plan. That is what I’m doing in my retirement accounts, even though it hurts to see them down. I know I get to buy low and things will come back in time.

    • Market Timer says:

      Many people lost their butts already 😀

      And at this rate, no one is buying low anymore. The Nasdaq is within 10% of all time highs. That’s just nuts.

    • David@MoneyNing.com says:

      I was watching some stocks the last couple weeks but I just didn’t have the guts to plow into them. It’s disheartening to see how I’ve missed out but on the other hand, I could easily have lost my life savings gambling too.

      That’s why most people just need to have a plan ready and buy whenever they have the funds and stick it out when times get tough. Otherwise they are, like you say, gambling and that doesn’t turn out great most of the time.

  • Speedy KT says:

    And…. we are off to the races again. These are crazy times. Sticking to the plan is going to be hard!

    • David@MoneyNing.com says:

      Crazy indeed. This volatility really drives home to me one of late Jack Bogle’s famous saying “Nobody knows nothin’!”

      Stay the course, because that’s really our best chance!

  • Christie says:

    I agree with the author here, as no one can time the market. Just buy incrementally and stick to the plan. Unless you are lucky with timing, you likely lost out on a whole lot of money these past few weeks.

    • David@MoneyNing.com says:

      It’s really tempting to market time right now, but I know I’m too emotional to make any money that way. All I can do is trust that the long term returns of stocks will be good enough to give me and my family a comfortable life.

      Stay the course!

  • Loser J says:

    Where was this article 3 weeks ago? 🙁 I sold out a bunch of my stocks very close to the lows and now I’m terrified to get back in. I am going to follow your advice to get back in a bit every month. Hopefully it’ll work out for me.

    • David@MoneyNing.com says:

      Remember 2008 when everything came crashing down? Those who eventually got back in still made out, while those who stayed out stayed relatively poor.

      Make a plan and trust that you will prevail long term. That’s why we all invest in the first place.

  • Ace says:

    I’ve been buying. I even made my kids all buy stocks a couple of weeks ago and they are making out like a bandit. We got lucky with this good little pop and now my kids keep asking me how much they are making in the market today.

    The next step is for me to teach my kids to check prices out themselves and for them to think long term.

  • Market Timer says:

    These are good steps to take in this panic. I’m willing to bet that we will retest the lows so I’m biding my time in the meantime and then start buying after the market drops a bit. If I don’t get in the bottom, that’ll be ok but at least I’m not chasing the market higher at these levels when everything is still shut down.

    • David@MoneyNing.com says:

      Pick the plan that will minimize regret if it turns out to be wrong. That’s really all we can do in these unpredictable times.

  • Michelle says:

    The stay the course type advice sounds good and all, but there’s no way I’m staying in the market when practically everybody is suppose to stay indoors and not spend money. Can you imagine the amount of people who will continually be laid off as time goes on?

    Too many people still think there will be a magic vaccine and then everybody will go back to the way things were instantly, but reality just doesn’t work that way. Even once we start recovering, it’ll take ages for everyone will slowly return to work and return to their communism habits. In the mean time, mortgages, rents, loans will all pile up and plenty will default on those.

    • David@MoneyNing.com says:

      I agree with you somewhat that it’ll be hard to instantly go back to normal business, but for the sake of our economy and our wallets, I hope you are wrong!

  • Tesla says:

    This is timely advice David. I was lucky enough to have stayed the course but I know of a few friends who cashed out a few weeks ago. I hope they didn’t lose too much and can sleep at night now.

    I’m forwarding this piece to them now.

    • David@MoneyNing.com says:

      I really hope so. Missing a 20% move is a really big hit, but i’ts not unrecoverable. Pick an asset mix where you can stay the course!

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