Omicron is here, and it’s a variant that has taken over the news lately. Dealing with bad news means learning how to have peace of mind during troubled times for investors and retirees alike.
If there’s one thing that the pandemic has shown the world, it’s that markets can take a nosedive during a health crisis.
Anxiety and stock market volatility can last for days – or weeks – and trying to find peace of mind and secure your retirement can be difficult. So, we like to create a structure when retirement planning that allows us to handle market fluctuations even during a pandemic.
How People Have Been Trained to Mitigate Investment Risks
The most common form of investing (and it’s something that you might do) is to buy and hold. Investors have been advocating the buy-and-hold strategy for a long time. For example, you purchase Amazon stock and hold it.
However, over the years, portfolio diversification has become more popular.
For example, you may invest in:
- 401 (k)
- International stocks
You may buy a section of the market, such as a large-cap or small-cap, or you may buy into energy. Asset allocation works by buying a little piece of everything with the hopes that your portfolio makes money.
Annually or quarterly, you may reallocate your investments, and you’re certainly reducing your risks.
However, it’s also difficult to withstand a pandemic when the market as a whole tumbled 34% on news of the virus. Buy and hold investors took the brunt of the stress at this time because they saw losses of $34,000 for every $100,000 invested.
Our Approach to Mitigating Investment Risks
Now, we’re going to share our investment strategy with you today. We use this very strategy to help our clients through retirement planning, but we’re not saying that this is the only way to invest.
For us, we find the following approach to work very well.
However, you need to find a strategy that works best for you and your unique investment goals.
You may want to take a different approach – that’s fine. We’re just going to explain what works for our clients and us so that you know all of the options available to you.
How We Handle Risk Mitigation
When we invest, we don’t invest based on:
- Gut feelings
- What we think will happen in a market
Instead, we use data to help us monitor what the market is doing. When you use data to make decisions, you remove all of the emotion and attachment to investment from an equation.
If you can, think back to January 2020, right before the market was thrown into a tailspin on the news that this thing called the coronavirus was spreading in Wuhan and is now a major global concern.
No one could forecast that COVID-19 would take over the world in just a few months.
Did you know in December 2019 and January 2020 that the entire world would change? Of course not. Since we use active management, we were able to analyze the data and eventually pulled all of our clients’ money from the market.
We sat on cash for several months because it allowed us to negate the stock market losses.
Our clients had their portfolios fall 9% instead of 34% for those that kept all of their money in the market. We like to think of this as a race among three major players:
Cash only does well when stocks and bonds are falling, so we saw these signals and made the decision to go into cash.
When we re-entered the market, we also used the data available to us to make the switch. For example, we use firms that collect data for us that we can analyze monthly and quarterly.
After the pandemic, we entered small-cap funds before the data signaled that it was time to go into mid-cap and large-cap stocks. Ironically, the news at the time we re-entered the market was doom and gloom.
If you just looked at the news, you would have sleepless nights filled with worry and fear that you’ll never be able to recuperate your losses. However, about 40 days after we pulled out of the market, the data was telling us it was time to reinvest.
Emotionally, we were scared to go back into the market, but we listened to the data.
At the end of the year, our growth portfolio rose 19% after fees in a year when many people sustained massive losses.
Feedback From Clients During the Pandemic
Our clients were emotionally invested in their portfolios, and we gathered a lot of feedback from them during the start of the pandemic. People were rightfully scared of what the market would hold for them after the dust settled.
Most of our clients said, “We understand why you call yourself Peace of Mind.”
We deal with retirees and those ready to retire. Our clients were given regular updates. We were honest and open, telling our clients, hey:
- Stocks are dropping, so we’re reallocating to bonds
- Bonds are no longer working, so we’re going to sit on cash
We were giving updates every few days. When clients realized that they would have lost a ton of money if we just relied on the buy and hold strategy, they gained a lot of trust in us.
Since we navigated clients out of the market crash, they trusted us going back into the market.
Now, we’re back in the same scenario with Omicron. We don’t know what the future holds with this new variant or if the Fed will step in to prop up the market. However, what we do know is that the data will tell us what key steps to take next with Omicron and any other variant that may pop up.
If you need help trying to find peace of mind in your retirement, we can help.