Instead of Making Investment Decisions with Your Hair on Fire, Consider What You Can Learn from a Steady Hand of Experience on the Steering Wheel

March 6, 2020 - 5 minutes read

Do Your Do-it-yourself Investment Decisions Keep You Up at Night?

What a wild couple of weeks for those making investment decisions.

On February 19, the S&P 500 reached it’s all-time high. Only 12 days later, the fastest market correction in history knocked values down significantly, largely due to concerns about how the coronavirus may impact the global economy.

To a new or “Do-it-yourself Investor“, this kind of sudden market correction may seem like financial Armageddon. It could lead to personal uncertainty, or even panic. After all, making investment decisions with your hair on fire (metaphorically) is not a plan for success.

However, when you take a step back and look at the longer-term perspective, you might be able to breathe better and relax your white-knuckle grip on the steering wheel.

The Steady Hand of Longer-term Perspective

In our most recent Market Update (March 2, 2020), we shared this chart that shows the market impact of past outbreaks (dating back to 1997):

If your perspective on market performance is limited to just the last few weeks, it might very well feel like the end of your financial world. However, as Registered Investment Advisors, we have the benefit of experience and longer-term perspective. We can see this correction as a correction, without letting fear or negative emotions drive our investment decisions. Our strategy of portfolio diversification helps to mitigate such shocks.

In the examples above, the market impacts of these disease outbreaks certainly vary. But in each case we see that an outbreak occurs, markets react, and over the long term, growth resumes.

Our Most Recent Investment Decisions

Referring again to our March 2 Market Update, we expect, in the near-term, that the Coronavirus will dominate headlines and create problems around the world. We acknowledge the potential for a significant economic slowdown due to the precautions governments around the world are taking, together with supply disruptions across numerous industries. But while there are still many questions, there simply is not enough solid information to merit selling our long or short term positions.

Because we like our current position, we have generally held on to our stock holdings. Our clients are well-positioned with high-quality, dividend-growing, strong free cash flow companies in our large-cap strategy diversified across sectors. Our Core Equity strategy yield is 2.9% (compared to a 1.6% 30-year U.S. Treasury yield).

In our Growth Equity Strategy, we reduced risk during January and February, and gradually reduced exposure to the technology sector (where valuations started to look somewhat stretched). We took a more defensive position within the healthcare sector. We also chose to carry a slightly higher cash balance, which we seek to put to work, as more attractive opportunities come up as a result of the current market correction.

Let the steady hand of experience work for you. There is no need to get caught-up in fear or emotion as it pertains to your investment decisions.

What Should an Investment Advisor Do for You?

If you are actively investing, or thinking about starting, you’ll want to visit with a Registered Investment Advisor. To learn more, download our free eBook “3 Things an Investment Advisor Should Do for You”.

 

 

 

 

 

 

 

Anatoliy Cherevach is a Chartered Financial Analyst and a Portfolio Manager with Kunath Karren Rinne & Atkin, LLC, with over 19 years of portfolio management and security analysis experience. Prior to joining KKRA, he was a Portfolio Manager and Research Analyst with Cohen & Steers. Anatoliy holds an MBA in finance from Pacific Lutheran University. He is an active member of the CFA Institute and CFA Society Seattle. 

 

 

 

 

 

 

Tags: growing your money, investments, kkra