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Three Key Tips for Your Savings Strategies During COVID-19

May 4, 2020

As we all maneuver through the COVID-19 pandemic, there have been concerns raised across all facets of our daily lives. Investment planning is one of those areas. The market volatility can be scary but know that you are not in this alone.

Together, we will get through this time of uncertainty. While it may be difficult to know when—and if—to act on your investment portfolio during the pandemic, there are a few key things you can remain focused on to help navigate your finances forward.

1. Don’t Panic

The day-to-day volatility—positive swings, negative swings, and everything in between—in the stock market right now brings up plenty of investing fears and concerns for individuals. During these times, we often see a lot of selling activity driven by fear. Although it can be very tempting to sell your investments amidst the panic, one big downfall to selling at market lows is the inability to recapture some of those dollars when the market bounces back.

The best thing you can do prior to selling anything out of fear is to assess your long-term financial plan and determine if you are still on track to meet your goals. If you just can’t take the volatility any longer and decide to sell, make sure you have a strategy in place on when to get back into the market and recapture some of those losses. But of course, no one can consistently time the markets with any accuracy.

Lastly, you are likely seeing and hearing many different headlines talking about the stock market and investing right now. You may read about a lingering recession or large drops in the Dow, however it’s important to remain focused and not let a headline fuel an impulse decision. For instance, the Dow is referenced frequently in the headlines, but that index actually represents a small subset of the stock market in general (only 30 stocks) and doesn’t necessarily mean your account is dropping at the same rate.

2. Stay Focused on the Long Term

Take a holistic look at your investment portfolio. It’s important to keep all of your long-term goals and objectives as top priorities, even through times of market volatility like we’re seeing with COVID-19.

Remember that when you set your objectives initially, perhaps when the markets were calmer, you had determined your risk tolerance and understood that you may see an occasional decline in your investments. Declines in the stock market should be expected based on normal market fluctuations. With this in mind, and given the current market instability, consider holding off on adjusting your risk tolerance and target asset allocation at this time.

While we work through the uncertainty, there may be opportunities to actually take advantage of the current market environment. Here are a few examples to consider:

  • Employee benefits – If you can, keep contributing to your 401(k) or other workplace retirement plan. Since this is a retirement account, by contributing now after stocks have declined, you’re buying in at lower prices. This is a good strategy if you are holding for the long-term.
  • Retirement planning – If you’re in retirement or close to retiring, now would be a good time to discuss if your plan is still charting the course it needs to or if any adjustments should be made in the short term. This will help you identify whether your current spending rate will leave you enough money to sustain your lifestyle throughout retirement. If not, is there an opportunity to adjust spending for the time being? Do you have flexibility to decrease what you have to withdraw out of your investment accounts right now to avoid having to sell when the markets are down?
  • Estate planning – For those who are planning to gift assets to their loved ones, there is an opportunity now to get more shares of a particular security gifted at a lower price. When the market inevitably rebounds, the growth of those shares will be growing outside of your estate, and thus increase the value of your gift over time. This is also helpful for anyone who may have concerns about paying estate tax down the road.

If you are considering reallocating your portfolio once we are through the crux of this pandemic, re-evaluating your stock/bond allocation would be a good next step. For instance, if you started with a target allocation of 60% stocks and 40% bonds, but have now shifted to say 55% stocks due to your stocks declining in value, you can determine when it makes sense to buy more stock and get back to your target allocation.

3. Talk to Your Financial Professional

While it may be difficult to know exactly when to act, having a strategy, goals and long-term objectives for your investments is important when evaluating your assets in the current environment. Know that you don’t have to navigate these uncertain times alone. Financial advisors and other professionals are here to talk through any concerns and assist with recommendations.

One of the key things we’re thinking about now for our clients is assessing whether growth rate assumptions may need adjustments across investment portfolios going forward given the state of the market. At a time like this, re-running long-term cash flow projections at market lows helps us determine if the long-term plan still holds together—and if not, we look at short-term adjustments to help keep you moving towards your financial goals.

If you would like to discuss your investment portfolio in greater detail, please contact an ESL wealth management professional by calling 585.336.1000. We’re here to support you through this time—and well into the future.