The beginning of last February was an exciting time for me. I had been recovering from foot surgery and was learning how to walk again after being unable to for nearly six weeks - no one tells you how hard this is! So, you could say life was good. In the background was the typical news cycle of the world's troubles with bits of happiness intermixed, just what you would expect and enough to keep you tuned in for the following evening's report.
The prior month had alarming reports of a new disease known as COVID-19 surfacing stateside, but things were still somewhat normal, perhaps slightly on edge.
Then the onslaught of hysteria arose: First in the news, then on the empty grocery store shelves, and then, of course, on Wall Street. It seemed to become a vicious cycle that became self-sustaining; people were selling their investments, making a run on the grocery store, only to cause others to do the same.
So, from February through March, my life became my job. During this time, I happened to be working as an advisor for one of the largest financial firms in America, specializing in the world of employer-sponsored retirement plans. This brief period saw the most prominent sell-off of the US and global stock and bond markets in history, which we at Lundeen Abrams Advisors now refer to as the Pandemic Plummet.
Each weekday I spent ten hours on the phone, providing financial guidance for twenty-plus people a day. To say this was a lot to handle would be an understatement. I had never talked to many of these people before, and my job was to understand their situation and find a solution to the seemingly bottomless pandemic plummet. Many were recently laid off; others were concerned about sustaining their retirement; some had family members dying of COVID-19. It was a harrowing time and a humbling experience.
I did my best to help clients find solutions to their problems while trying my hardest to stop the reflexive selling of entire portfolios. Instead of taking everything to the bank, I advised clients to place trades essential to their plans or safeguard their immediate financial security. Remember, people were losing their jobs, and unexpected death was a reality. New York City became a battlefield, and suddenly, a need for cash became a genuine necessity for many now jobless and, unfortunately, smaller families. Some listened, and some didn't.
See, at my previous firm, I worked on a team as a point-in-time advisor. You could talk to me or any of my colleagues during regular business hours to gain guidance on your current situation. Unfortunately, this meant many folks had never created a financial plan or even reviewed their investments in years. As a result, the Pandemic Plummet caused acute stress and a sudden need for financial advice amongst a large swath of the workplace savings population.
I am glad I was there to help. This time provided me with a unique insight into the inner workings of the average person's situation. I gathered five takeaways that you need to know as an investor, regardless of your situation or age.
1 - Have a plan
Financial planning is underrated and underutilized in the United States. We are the wealthiest nation, yet many people do not take the time to create a plan. Instead, they invest and defer that need until later.
Research has shown that creating a financial plan and a successful retirement are intertwined. Those with a plan have 250% more retirement savings than their peers without a plan, meaning you are better prepared for an unexpected job loss or the death of an income earner in the family.
COVID-19 showed the importance of having a financial plan in place. Those who had savings plans were better prepared for the unexpected than those without it. If you are unsure where to start, working with an advisor can be the first step to creating a successful retirement plan.
2 - Make sure you understand investment risk
One of the biggest reasons to create a financial plan, outside of the stability it brings, is the benefit of understanding investment risk.
See, investment risk refers to your ability to tolerate portfolio value fluctuations in the pursuit of gains. Everyone can handle when the market goes up, but not everyone can stomach a drop. By learning about risk and reward, you will be empowered to invest up to your comfort level, eliminating the chances of panic selling.
You should sleep at night regardless of what your investments are doing; if you cannot, then your investments are too risky. Planning helps eliminate this lost sleep since you understand what can happen, and your portfolio reflects how risky or risk-averse you are.
3 - Stick to your plan
Abandoning a plane mid-flight due to turbulence is ludicrous; instead, the pilot tells you to buckle your seat belt. Your destination is within reach, and you have to deal with the unpleasant feeling of being jostled around; however appealing it sounds, jumping out and using a parachute is inadvisable.
What does this have to do with investing? Everything. By having a plan and sticking to it, you are more likely to reach your destination. That is one of the reasons why those with a financial plan have 250% more saved at retirement. You're prepared for turbulence, and for those with an advisor, the advisor acts as a pilot. Jumping out of your portfolio during a crash is a sure-fire way to lose money. After all, your investments have not made or lost money until sold; everything is unrealized.
If you think timing the market is possible, all you need to do is look at most hedge funds, which underperform the market yearly.
I met with many clients come August of 2020 that were grateful that they stuck to their plan, as the markets fully rebounded, and now the clients were worth more than they ever had been before!
On the other hand, I met with some clients who sold during the crash and still had not gotten back in by May of this year. The majority of these clients did not have a plan for getting back into the market. Additionally, they told me that they regretted selling initially and not getting back in sooner.
4 - Don't fall into hysteria
Rational thinking is the marvel of humanity. Unlike many other species, we can deduce and reason, which gives us the power to make tremendous or horrible decisions.
During the Pandemic Plummet, I often heard from people that their fear was the market would go to zero, meaning they had to sell now! However, if the market goes to zero, your money is worth zero.
Why? Because it means both the US and global economies have vanished. In this scenario, every company is gone. If every company has gone under, the government likely has too. Chaos would be everywhere, and you are more likely to be worried about your survival for the next day, not your retirement. After all, cash is worthless if there is no government. And for those who think gold is the answer, no one will trade gold for canned food in the apocalypse, sorry.
Thus, do not fall for hysteria. Had people not made a run on toilet paper, there would have been plenty to go around for everyone. Rational thinking is key to our survival and for your retirement plans, so take a step back and objectively assess any stressful situations yet to come.
5 - Cherish those around you
Now, the most impactful lesson that I gleaned from the Pandemic Plummet wasn't the plummet at all. Instead, it was the fragility of life and the importance of those around me. During the lockdown, all I had were those with shared familial bloodlines and friends I had cultivated. Connecting with them and making sure they were okay was my biggest priority, and it provided a sense of community.
COVID-19 was a significant hurdle for investors, but first and foremost was and continues to be a humanitarian crisis worldwide. Money is replaceable; your life is not. Appreciate those around you, as you never know if this will be your last day or theirs. Treat others with kindness and respect, regardless of their political affiliation or value system.
During the Pandemic Plummet and the subsequent months, I spoke to many investors who lost loved ones that otherwise would still be here. Do not forget to live your life and appreciate the small things. Creating a plan is essential, but it is useless if you cannot enjoy the time as you work your way through it.
