The most important and urgent matter at hand is to stay safe, stay healthy and stay strong. Our overall well-being depends on protecting our physical, emotional, social, spiritual, environmental and financial health, which are all connected. Protecting and maintaining your physical and emotional well-being is the top priority right now.
Some people may worry that the recent stock market decline represents an immediate threat to their financial well-being. My advice to them is simple: Breathe. Don’t panic. Stock market gyrations need not derail your long-term financial well-being, and stressing over them negatively affects your emotional, social and physical well-being.
Unless you are a trader or professional investor, investments held in the stock market should be for intermediate- to long-term goals – goals that are seven or more years away. The longer your time frame, the higher the probability of positive stock-market returns.
Conversely, the shorter your time frame, the higher the likelihood of negative stock-market returns, which is why funds for short-term goals – money needed within the next 12 months – should be invested in safe, liquid investments such as savings accounts, bonds or possibly money-market accounts.
The current situation is a strong reminder why everyone needs an emergency fund of at least six months of living expenses held in safe, liquid investments. If declines of 20% or more make you panicky and itching to sell, do the following two things.
Firstly, is to maintain a diversified portfolio that includes cash, bonds and other growth assets to limit the downside risk. The price for reduced risk is a reduction in potential reward; holding too much in lower-risk assets will reduce the expected returns and potential future value of a portfolio. To stay on track, investors with diversified portfolios should periodically, and at least annually, check the portfolio’s asset allocation to be sure that the investment mix will provide the returns they need within a risk level they are willing and able to tolerate.
Secondly, avoid checking your balances too frequently, especially after the first quarter we’ve just experienced, and particularly if it causes stress or prompts you to deviate from your established financial plan. You could also adopt a mantra or enlist a financial buddy to help you stay calm and avoid panicking.
According to Benjamin Franklin, an investment in knowledge pays the best dividends. Educating yourself about investments and understanding the risks and rewards of long-term investing could help reduce short-term fear and stress and help you achieve and enjoy financial well-being. For those who are interested, the internet offers countless financial and educational tools to help identify risk tolerance, build and/or evaluate a portfolio for risk and return expectations, and develop a suitable financial plan.
For a more personal touch, book a financial coaching session with our firm.
Most importantly, focus on your long-term financial goals. In the short-term, the stock market goes up and it goes down, over the long term, the trend slopes upward. Breathe. Don’t panic.