Investing during Coronavirus has exposed many flaws in portfolios, investor behavior, and advisor services. There’s a saying that everyone is a genius in bull market. Unfortunately, the previous 10 glorious years in the stock market masked a lot of risks for investors.
Since the March stock market crash, investors are discovering these problems and realizing that their portfolios may need a tune-up. Here are 9 investment pitfalls which were exposed by the Coronavirus.
9 Investment Pitfalls
- No Risk Analysis. Don’t wait until a Bear Market to assess what level of risk is appropriate for you and your goals.
- No target asset allocation. You can not rebalance if you do not begin with an objective such as a 60/40 or 70/30 allocation.
- Not diversified. Being concentrated in individual stocks or sectors can create wildly different results than the overall market. Diversification is valuable.
- Changing Direction. In March, investors wanted to sell at the low. However, in hindsight, they should have been buying. Stick with your plan and resist the temptation to time the market.
- Performance Chasing. We want to believe that the best strategies in the recent years will remain winners. Evidence, however, suggests that top active funds are unlikely to continue to outperform.
- Not using Index Funds. Everytime there is a crisis, I hear the argument that active fund managers can be more defensive than an index fund. However, when I look at industry data, such as SPIVA, the majority of active funds still have worse long-term results than their benchmark.
- Ignoring expenses and taxes. We can often create significant savings in expenses and taxes with good planning.
- Only focusing on investment returns. Investing is important, but your financial plan should address more. What about your savings rate, debt management, emergency fund, employee benefits, life insurance, estate planning, or college savings goals?
- Bad service from an advisor. Are you getting rebalancing, monitoring, and adjustments to your portfolio? Are you receiving timely financial planning advice? Is your advisor available to meet and able to add value?
Financial Planning Process
What investors need to understand about investing during Coronavirus are the benefits of a financial planning process. There is a science to financial planning and portfolio management. That is to say, there are best practices and important steps which individual investors often miss on their own. We can’t avoid market volatility, but having a disciplined process can make sure you are well prepared to avoid these nine problems.
Why Good Life Wealth Management?
- Fiduciary: our obligation is to place client interests first.
- Fees, not commissions. Transparent costs means you know exactly what and how we are paid. As a result, we think this better aligns our interests, reduces conflicts of interest, and benefits clients with independent ideas.
- CFP(R) Professional. Only about 25% of advisors in the industry hold the Certified Financial Planner designation. For more than 30 years, CERTIFIED FINANCIAL PLANNER™ certification has been the standard of excellence for financial planners. CFP® professionals have met extensive training and experience requirements, and commit to CFP Board’s ethical standards that require them to put their clients’ interests first. That’s why partnering with a CFP® professional gives consumers confidence today and a more secure tomorrow.
- CFA, Chartered Financial Analyst. The CFA Program provides a strong foundation in advanced investment analysis and real-world portfolio management skills. CFA charterholders occupy a range of investment decision-making roles, typically as a research analyst or portfolio manager.
When you have an important need, you seek professional advice. Our process is designed to help you achieve your financial goals and avoid the pitfalls that are often not seen until a crisis occurs. Did March reveal some problems with your portfolio and your financial plan? If so, give me a call and we can help you get back on track.