That doesn’t make them any easier or for that matter less scary. With the 24 hour nature of our news cycle you don’t get much of a break from thinking about your investments and at times I’m sure doubt and questions come up.

What should you do?

Stock Market Historical Perspective

First and foremost, keep in mind market crashes can happen quickly like in 1987, or be drawn out like the dot.com bubble bust. We’ve been through World Wars, 9/11, and a mortgage meltdown to name a few. In every one of these scenarios one common theme has emerged, the market recovered.

We can’t predict what’s going to happen next or even how long this current pandemic will last. What we can do is apply history which tells us the market recovers and so do we. Armed with this understanding here are three things you can do to minimize your losses and anxiety during this latest stock market crash.

Wealth Mangement: 3 Tips To Help With Your Investments

Stay The Course – If you’ve listened to me much you’ve probably heard this a ton and probably to the point of annoyance. What this means is stick with your current investment plan. Investing should be long term and that philosophy is born out of times like this. Turbulence makes a market but getting caught up in the emotions of short term swings can wipe out long term potential gains. Too many times I see people decide to sell and say, “I’ll get back in when the market calms down”. Here’s why that can be a really bad idea, according to Fidelity if you invested $10,000 in the S&P500 from 1980 to 2018 but missed the best 5 market days from the time period it would’ve cost you $249,667. The numbers get much worse if you missed the best 10 and 30 days. So if you think you’re going to time the market, you better not swing and miss.

Think Carefully about what you’re investing into during this time – The latest DIY idea is to buy into the problem area because that’s where the biggest opportunity lies. While I love the basic premise of looking for opportunities based off emotionally oversold stocks you have to be careful and evaluate why a specific company has been dragged down to bargain levels. A better idea that provides more diversity for your opportunistic appetite during fearful market times could be to take a look at index ETF’s that will provide you with some diversity to help ensure you’re not buying into the few companies or sectors that aren’t going to recover with the rest of the market.

Turn Off The News – Look I understand you can’t just unplug from what’s happening out there but there comes a point in time when you have to say enough is enough. With a 24 hour news cycle and social media, you can drive yourself crazy with emotion and anxiety. In most cases you won’t even realize it. I challenge you to recognize the trap and step away from your phone, tv, or computer from time to time and live life. It will allow you to gain fresh perspective and fight the paralysis by analysis that comes from too much news.

– Jarrod

Jarrod Adams Investing LLC
jarrod@adamsinvesting.com
10130 Perimeter Parkway
Suite 200
Charlotte, NC 28216

Sources:

https://www.fidelity.com/viewpoints/investing-ideas/six-tips
https://time.com/3741681/2000-dotcom-stock-bust/

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Here’s a look at the very first thing we do with our new clients. Our new clients answer a few simple questions about how they feel about money. More specifically making it and losing it. Based on their answers we are able to develop their custom risk score. From there we setup a call to discuss their score and collect all their relevant investing information.

From there we setup a call to discuss their score and collect all their relevant investing information.

We analyze all their investments and create a comprehensive portfolio stress test of their current holdings complete with how their portfolio could look in stressful market situations. We also breakdown their asset classes on a granular level, even deconstructing their ETF’s and Mutual Funds. Finally we detail how much their paying in hidden expenses that can erode away their returns.

Once completed our clients receive their comprehensive PDF report of all our findings along with our plan of attack for getting their portfolio risk, asset allocations, and return objectives in line with their financial goals. Oh, we also eliminate all those unnecessary fees.

Once we start actively implementing our new strategy our clients have crystal clear expectations for what we are going to do and how we are going to get there, and what to expect on the journey to their financial goals.

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Complete a 401(k) Rollover to Your New Employer’s Plan

The benefit of selecting this option is that all funds for your 401(k) retirement savings account will be in a single location. You may want to choose the rollover option if you’re concerned about ease of account management. Be sure to research your investment options and ensure that you feel satisfied with your choices before completing the rollover.

Leave the Money in an Account with Your Previous Employer

Most companies that offer 401(k) retirement savings plans to employees will allow them to maintain the account after resigning their position with the company. However, you need to consider these potential drawbacks before selecting this option:

1. Your former employer may charge you a monthly convenience fee.
2. Another company may purchase your former employer’s business or it may opt to work with a new 401(k) service provider. Both of these situations can be stressful as you will need to track down the location of your funds, possibly receive a new account number, and have to request new account access information.
3. You will need to keep track of multiple 401(k) accounts in multiple locations.

Convert Your 401(k) into an Individual Retirement Account (IRA)

If neither of the above options appeal to you, consider a 401(k) rollover to an IRA. One of the biggest benefits of doing so is that you typically have more investment options and pay lower fees with an IRA as opposed to a 401(k). You will need to select whether you want a traditional IRA or a Roth IRA if you go this route.

The Internal Revenue Service (IRS) allows you to make pre-tax contributions with a traditional IRA. It will assess tax when you begin making withdrawals on the account any time after age 59½. Withdrawing before that time may subject you to a 10 percent penalty.

When you choose a Roth IRA, you pay taxes on your contributions. Your withdrawals after age 59½ are then tax-free. The IRS does impose income limitations on Roth IRAs. In 2019, phase- out begins at $122,000 annually for single filers. You cannot contribute if you earn more than $137,000 annually. For married couples, the figures are $193,000 and $203,000. The maximum annual contribution for both types of IRAs in 2019 is $6,000 for ages 49 and under or $7,000 for ages 50 and over.

How to Proceed with an IRA Rollover

You can select a direct rollover or an indirect rollover if you decide that moving your funds is your best available option. When you opt for a direct rollover, the 401(k) management company of your former employer transfers the funds electronically to the company managing 401(k) retirement savings accounts for your new employer.

With the indirect rollover option, you receive a check from the bank currently holding your funds. It is then up to you to deposit the check into your new 401(k) or IRA account. This does put you at risk of losing the check. The only thing you need to do to initiate a direct rollover is sign the appropriate form to give your authorization.

Other Things You Need to Know Before Initiating a 401(k) Rollover

It’s important that you select either the direct or indirect rollover options described above rather than withdraw the balance of your 401(k) account from the holding company of your former employer. That is because the IRS will assess a 10 percent penalty on the balance if you haven’t yet reached the age of 59½. The only exception it allows to the 10 percent penalty rule is if you quit or lose your job at age 55 or older.

Although you may need to pay a fee when requesting the rollover, it is typically nominal. Additionally, the IRS does not impose any limits for how much money you can transfer from one 401(k) account to another or from a 401(k) account to an IRA.

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Thinking about investing? Unsure whether it’s a good option for you? Check out this video to learn why it’s important to begin building your nest egg early in life.

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Whether you have been receiving financial planning advice for 30 years or for three months, circling the wagons and looking at your processes is a great idea to make sure you and your advisor miss nothing—and are open to improving.

Start by considering these two questions (and share your answers with your financial advisor):

#1 WHAT ARE YOUR INVESTMENT GOALS?
Are they written down and clearly defined? Did you establish a time frame—when will you need the money? And what do you need it for? To pay for college, to buy a house, to fund your retirement? What’s the amount of risk you can tolerate? Do you want to invest in mutual funds, individual stocks, or exchange-traded funds? It’s important to capture all this information to help keep you on track. Remember, for most investors, retirement is often the end goal of investing your savings, which means this is a marathon not a sprint.

#2 WHAT TYPE OF INVESTING STYLE DO YOU WANT?
Strategy is vital: Investing is too important to simply wing it. For many investors, it’s a bad idea to just shoot from the hip and buy the latest stock mentioned on TV that morning, without doing due diligence into the prospective purchase.

Will you make decisions based on fundamental data like the company’s sales growth, cash flow, and debt level? Will chart patterns, price, and volume be a consideration?

Looking back at your risk profile from step one, you need an exit strategy before you buy a single share. This can help prevent emotion from taking over and muddling your original plan. If an investment drops 50 percent and shows little sign of rebounding, would you dump it?

Having a well-thought-out investment plan that lays out your time frame and risk allowance can help keep you on track during turbulent times. Years like 2018 are rare, where the stock market reached new highs; entered into correction-territory multiple times; set more daily, weekly, and monthly records; and then ended the year more than 6 percent off from 2017.

Do not allow this type of volatility to create confidence or concern. Instead, focus on the basics to achieve your goals.

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Okay, so now we’ve identified the question. The next step is to figure out what to do to help get your portfolio healthy or to keep your portfolio on track. Number one, figure out what your risk is. This is what you’re comfortable losing in a six-month span, in a one-year span, in all kinds of different time horizons. There’s a couple of ways you can do this. You can sit down and figure it out yourself. If the stock market’s down 20% in the next year, how much of that am I comfortable losing? If the stock market’s down 10% in the next six months, do I want to be down 10%? Do I want to be down 5%? Do I not want to lose any money? Once you answer those questions, you’ll be able to determine what your risk is. Now, if that’s too convoluted for you, we have a simple way of doing it. You can take our Risk Profiling questionnaire for free and we’ll give you a risk score between a 1 and 99, with 99 being the highest, ultra-risk, and 1 being super-low risk. Finding your risk preference is probably the most important part of your investing because if you misinterpret your own risk, chances are you will not be able to ride out the next big storm that comes that direction.

Once you have your risk, then the next step of the equation is to build a portfolio that matches your risk or to adjust your current portfolio to match your risk. In doing so– we’ll go back to the previous paragraph’s questioning. For example, If you decided you want half the S&P 500’s risk meaning if the general stock market’s down 10% over a six-month period, I expect my portfolio to be down half of that, you’re looking for half of the stock market risk. Well, then you’d want to start building a portfolio with an overall beta of 0.5, which means it will move, or it will grab about half of what the general S&P returns.

Now, again, you could also take your risk score that you got from us and if you like, we can help you build a portfolio that rates at a 62 score. A perfect match, if you will. Matchmaker.com, right?

Once you build your portfolio, you’ll then want to stress test it. How does it perform in different scenarios? How would have it performed in the 2008 stock market collapse? How would it perform during the Trump bump? How would it perform during an interest rate increase? By doing so you’ll get a feel for what to expect in the more extreme market situations that will certainly call on your patience. And then obviously by creating a set of expectations, you’ve got a much better chance of setting your emotions aside and withstanding the fear and greed that will inevitably come up.

As you can see, when you start to do these things you get so far away from answering the question of, “What do you think about XYZ?” We ended up digging deep into, “Okay, who are you? What are your expectations of risk? Okay, now here’s a portfolio that matches who you are.” So instead of what you think a stock might do, you’ve turned into, “Here’s what I expect from my portfolio based off of who I am.”

If it’s something you’d like us to give you a little bit of help with, you can get it right now by clicking the link below and getting your risk score.

GET YOUR RISK SCORE FOR FREE

Take Care,

Jarrod Adams
10130 Perimeter Parkway Suite 200
Charlotte, NC 28216
P:(704) 996-4243
Jarrod@AdamsInvesting.com

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