We definitely are living in very uncertain times. It’s almost impossible to predict exactly what is going to happen in our economy over the next few months or years, let alone the next few days. Investors naturally have a lot questions and are hesitant to make big moves. Investing in times of uncertainty is much more intimidating for some than it is for others who know what they are doing and have a solid plan.
The simple truth is that there is always some level of uncertainty involved in investing. The stock market and other financial markets have their natural ebbs and flows, some of which are fairly predictable while others are more difficult to read. Then, there are the larger, wilder spikes that can be caused by major events. Yet, the COVID-19 pandemic has shaken our society—and our economy—to its core.
When it comes to investing and making financial moves during an uncertain market like this, there will of course be winners and losers. There always are. The question you have to ask yourself is which side do you want to be on?
Beyond just coronavirus concerns, we are in an election year. This always ramps up the uncertainty. Politically speaking, there is a very wide gap in America that seems to be growing every day. A good chunk of the population will believe that the sky will fall if their candidate is not elected, and this is true for people on both sides. This can cause even some of the most experienced investors to make panicked moves. Warren Buffett predicted the economy would be in shambles in 2009. In some ways it was, but certain markets also skyrocketed and savvy investors took advantage heading into the healthy economy that followed.
Any smart investor will need to do his or her research and decipher what is acceptable risk. They have to look for ways to navigate the uncertainty and recognize how and when the impending market corrections will happen. We are always going to have big scares. We are always going to have major ebbs, flows and eventual market corrections. It may be hard to see the end of the tunnel right now, but we will find it eventually.
The moves you make now can prepare you for the ultimate market correction. The goal of most successful investors, however, is to be more proactive than reactive. This is where sound financial planning and investment management come in. Some people have investment portfolios that can weather any storm. Meanwhile, others have to work a little harder to survive an uncertain market and come out the other side in a strong position.
Here are a few strategies you can implement to strengthen your investment portfolio to provide more certainty during uncertain times like these:
Have a Game Plan—You always have to be ready for anything, and this starts with a solid financial plan. Can your portfolio survive major drops while benefitting from any spikes upward during a recovery period?
Remember the Fundamentals—Successful investors are generally very disciplined. It’s important not to make major reactionary moves in an up or down market. Stick with your plan, rebalance it as needed and think things through carefully to avoid decisions based on panic instead of planning.
Leverage Your Balance Sheet—Minimize your short-term debt like car loans and credit cards. Long-term debt tied into an investment (mortgage, for example) is fine. Leverage your personal balance sheet to reduce risk and be better prepared for any scenario ahead.
Maintain Your Emergency Fund—Times like these are grave reminders that it’s a good idea to maintain a larger-than-average emergency fund to cover cash flows and get through a difficult financial period.
Be Smart with Your Money—Uncertain times can bring some good deals on “stretch” items like housing, cars and luxury items. It can be tempting to jump on these deals, but you really have to ask yourself if that’s the best way to spend your money—especially when we still don’t know exactly what the future has in store.
Assess Both Micro and Macro Risks—When making any major financial decisions, you have to look at both the small picture and the big picture. In the business world, we call these micro risks and macro risks respectively. Short-term solutions may not always be best for the long-term plan and vice versa. You have to weigh every risk and think out every scenario.
Seek Professional Guidance—Investing in uncertain times isn’t easy, and it’s even harder when you try to take it on by yourself. Working with an experienced financial advisor can help you solidify your investment plan and overall financial strategy. Your financial plan can make you ready for anything that lies ahead.
Illumination Wealth is a leading financial advisement firm. No matter what you are planning for—business or personal—our team is here to help you build a stronger financial plan and make the tough decisions during uncertain times like these.
Contact Illumination Wealth today to schedule a no-obligation introductory consultation with one of our top financial advisors.