I recently re-read some market commentary from late 2019 (including my own) and it’s shocking to think of all we’ve been through in the investing world since those words were written. The world has been upended by a virus that is yet to be contained, markets have rapidly plummeted (and many have recovered almost as quickly), governments around the globe (including the US) have taken drastic measures to add necessary footing to their economies, and there has been a very clear dividing line between the businesses benefiting from this unforeseen event and those being decimated by it.

All that to say it hasn’t been an easy year to be an investor! There has been (and will continue to be) a never-ending dialogue about what has happened, what is happening, and what will happen related to COVID-19. Add in ongoing geopolitical events, the pending US election, weather events, civil rights movement, and a seemingly innocent bystander in the US Postal Service, and you may just be wondering what to focus on next and how to move forward on your investing journey.

I am finding it helpful lately to tune out all the noise and to reset my attention on a few guiding principles. They are helping me navigate this time (both my own portfolio as well as clients’ portfolios) and hopefully they will be of value to you as well:

1.) Remember your why

When investing becomes volatile or uncertain, I always find it helpful to remind myself why I’m subjecting myself to this process. The reason will vary by individual. Perhaps it’s the opportunity to grow invested capital over time to meet needs and wants in retirement, or a tangible item such as a new home, or a specific goal such as funding education, or a desire to pass wealth along to the next generation, or a combination of items.

Whatever your specific “why” is, keep that front and center when markets become challenging. When you need to keep going, it’s incredibly important to remember why you started in the first place

2.) Don’t lose sight of your starting point

If you have been investing for more than a year, odds are you have made some level of return on your capital, even with the impact of 2020’s events. I suggest reviewing performance on an annualized return basis since inception. Returns always tend to look choppy “up close” – but historically, over time, investors have been rewarded for staying in the markets. (And even if you are new to your investing journey, keep going. The return equation is likely to become more meaningful (and positive!) over time)

3.) Review your financial plan – and make improvements where you can

You should have a financial plan guiding your investing (if you don’t, now is an excellent time to formulate one). Your financial plan has four key elements – all of which should be reviewed and adjusted on a regular basis (but especially when markets are challenging)

1.)Inflows – this is money you are bringing in. Do you have the ability to make career changes to enhance your income? If you own your own business, are there opportunities for growth? Can you pursue another form of earnings (like a side hustle)?

2.) Outflows – this is money you are spending. Are there items you could eliminate, thereby freeing up more funds to be saved?

3.) Risk – this is the level of risk you are comfortable with (with risk meaning volatility and variability in returns). Perhaps you’ve discovered this year that equity price volatility is not something you can stomach. If so, your risk tolerance needs to be adjusted

4.) Return – Based on the risk you set and market conditions, there will be a resulting expected return for your plan. This will always be changing based on the world around us. For instance, as interest rates have fallen this year, a plan with high weight to fixed income (due to a low desire for risk) now has a considerably lower expected return. Revisit your return and determine if it will get you to where you’re trying to go

4.) Practice the Noah Principle – “Build an arc and stop trying to predict rain”

I heard this saying for the first time during the sell-off in March 2020, and ever since, it’s been top of mind. The meaning? Stop trying to predict what is coming. It’s futile. No one knows what the future will bring when it comes to a vaccine, the election, or any other topic. Instead, spend time evaluating and structuring your portfolio for a variety of situations so you are ready when and if the “storm comes”

Few suggestions on how to “build an arc” starting today include:

1.) Write out your budget. We always worry about not having enough money when markets correct. Take action versus worrying. Write out what you earn and what you spend. Use those amounts as you move thru this list

2.) Verify that you have set aside enough liquidity to meet your non discretionary spending needs (see #1) for at least 6-12 months (emergency savings) in the event you lost your job. Increase if you feel you could not replace your job in that time frame

3.) If you are living off your portfolio in the present time (or plan to in the next 3 years), consider allocating 1-3 years of spending in more stable assets (such as cash equivalents and short duration bonds). Also consider using select dividend paying equities to fund some of the spending needs. This will allow you to live your life undisturbed, even if “the storm comes”

4.) Review your portfolio. Are risk tolerances in line? Do you have diversification across asset classes? What assets do you own? Do you know why you own them and how they will do in a variety of outcomes?

5.) Be more like Wayne

Wayne Gretzky (NHL superstar and fellow Canadian) famously said that he skated to where the puck was going, not where it presently was. When it comes to investing, we all need to be more like Wayne. It’s so tempting to look backwards in investing. Resist that urge! Instead, look to where the puck is going. What trends will materialize in a few months? What are various asset classes likely to return going forward, with today as a starting point? Given my investing alternatives right now, what is the best allocation for my plan? Can I save more and if so, where do I want to invest those funds?

6.) Keep going

Investing is not easy. 2020 has proven that. At times, it is tempting to simply stop..to cash out and remove the pain and fear that comes with an uncertain outcome. This year has been a masterclass as to why that may not serve you in the long run. Had you “cashed out” at the end of March 2020, you’d have missed a +30% return (or worse yet, locked in a +30% decline on the other side). Keep going. Stay invested. Stay calm. And if you need to do something, reach out to a trusted advisor and talk it through first.

Hopefully these guiding principles are of help to you during this time. Stay the course. We can do this – together!

Invest on,

Pam