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Top Investment & Financial Considerations during the Coronavirus Selloff

You’re presumably working-from-home by now to help flatten-the-curve and curb the spread of the latest coronavirus pandemic (COVID-19). While drinking your morning cup of coffee, you hear a stern warning from a very serious business reporter on CNBC, discussing the Dow Jones and S&P 500 both set to open down another five percent, and that the sell-off may worsen as the day goes by...

So what should you do now?

If you screamed, “Sell!” or “Panic!” perhaps you should take the advice of some of the world’s savviest investors and practice some social distancing from your investment portfolio. If you have an intelligent investment strategy and financial plan in place, it’s typically best to stay the course. Many professional financial planners stress test client retirement strategies and financial plans including a black swan event and different data assumptions, to illustrate the impacts on the plan or the "probability of success".

Don’t touch your face and don’t touch your portfolio

Your health and well-being should be your first priority. However, as an independent financial advisor in Cleveland, Ohio, I wanted to share some of the top considerations for your investment portfolio and personal finances during this market downturn. Making micro-adjustments to your investment strategy now, could have significant long-term impacts towards helping you achieve your financial goals!


Top Investment & Financial Considerations during the Coronavirus


1. Rebalance Your Portfolio

Rebalancing your investment portfolio at specified time-intervals or within defined target bands, can help keep your portfolio in line with your target risk and return. During market selloffs, your current asset allocation may be significantly off from your target allocation. For example, if your target portfolio consists of a 60/40 mixture of stocks and bonds, after a steep drop in stock prices, your portfolio may look closer to 50/50. This asset allocation may have lower future return expectations or lower volatility than your preferred portfolio.

2. Resist Panic Selling

Typically panic selling is triggered by events that may lower the confidence level of investors causing them to sell and when this occurs on such a wide scale sharp declines in pricing tend to occur. Selling in a rush to get out of a down market could have long-term implications and often times cause you to miss out on some big gains when the market corrects.

Before selling, ask yourself:

  • Will I be able to achieve my long-term financial goals if I am sitting in cash?
  • Does my current investment strategy take into account my investing time-horizon, liquidity needs, risk tolerance, and other financial goals?
  • Does selling stocks go against my investment strategy?
  • If I sell out of stocks now, do am I planning to get back in once the markets become less volatile or when stock prices rebound?
  • Am I aware that this means I want to "Sell Low and Buy High"? A losing investment strategy.

3. Take Advantage of Tax-Efficient Investment Strategies

There are several tax-efficient investment strategies that you should consider during a market selloff.

  1. Harvest Tax-Losses on Investments
  2. Consider a Roth Conversion
  3. Recharacterizing IRA Contributions
  4. Delay Filing and Paying Taxes Until July 15th

4. Protect Your Nest Egg

If you’re really worried about things like a college or retirement fund during a downturn in the market there are a few steps you can take to protect these funds.

  1. Temporarily Adjust Your Retirement Withdrawal Strategy
  2. Reduce Debt
  3. Manage Risk
  4. Maintain Liquidity

5. Focus Long-Term

When you start to see headlines of the stock market declining it can be easy to go into panic mode and wait to watch values decline in real-time. However, when you sell investments in a downturn your essentially locking in your losses. When the market eventually stabilizes you'll likely be left chasing much higher prices. It's always a good idea to keep your long-term goals in mind before making any decisions in a downturn and consulting with an experienced financial advisor before making any moves.

6. Optimize Your Investment Returns

Consider making some micro-adjustments to your investment portfolio.

  1. Swap Out Expensive Funds for Lower Cost ETFs
  2. Get Paid On Your Cash
  3. Review Tax-Smart Asset Location Between Account Types