Elk test for financial planning
Dr. Roman von Ah
Financial Markets
Will stock levels continue to fall - even after the current recovery? Maybe, but you should still leave your investments alone.
Will stock levels continue to fall - even after the current recovery? Maybe, but you should still leave your investments alone.
Elk test for financial planning
Unsurprisingly, the Corona virus does not adhere to any national borders. This has been a brutal wake-up call for capital market participants in recent days. Due to the rapid spread of the virus and understandable speculation about the economic impact of the disease, financial markets have gone into free fall. Such a slump is by no means unusual, so stay calm.
The short-term situation may still be in flux; this should not change your long-term financial goals or your strategy. The recent stock market slump is the obvious investor reaction to the corona virus.
For well-advised investors, short-term fluctuations should make no difference in your investment strategy. If your investment goals are the same as last week, then your portfolio should remain the same.
Here's our advice to anyone panicking about their investments.
1. take a breath
It's never wise to make decisions - financial or otherwise - on impulse. I know of investors who sold their investments in the first quarter of 2003, literally at the market bottom of the TMT crisis. I don't think there could be a more awkward time to sell. No reason to be.
Currently, we know too little about the coronavirus. We don't know how far it will spread or what potential toll it will take in human lives.
The stock sell-off is impulsive because it is a reaction to the unknown. Such fears are hardly uncommon in human history and are hard-wired in the brain in the amygdala (almond nucleus complex), responsible for fear conditioning. This is why we are always prone to emotional overreactions.
Amygdala (almond nucleus complex)
Source: Wikipedia
Now is a good time to step back from the current hysteria and think about your investment strategy.
2. Ask yourself why you are invested in the first place
Is it about your (early) retirement? Are you looking to catch up on missed savings opportunities? Are you saving with a larger investment in mind?
Have any of your goals changed due to the recent coronavirus-related market downturn? Probably not. No matter what is currently happening, you should be proactive in planning for your financial future, and your current actions must be consistent with your long-term goals.
Like any other crisis facing humanity and the financial markets, the coronavirus and the market reaction it caused will one day go down in the history books.
In the meantime, it is important that you review your original investment objectives and strategies. Unless you are doing something that is inconsistent with those plans, there should be no reason to take radical action.
If you are having difficulty processing events on your own, bring in professional help. Just as a patient meets with their doctor before surgery, it might be a good idea to meet with an investment professional and have an honest conversation about where you are on the path to your financial goals.
3. Take measurable action
One of the best ways to regain a sense of control is to take action. You don't have to do anything radical, either. Sometimes small steps are all it takes to shore up your existing investment strategy to restore balance when circumstances seem out of control.
If your portfolio mix made sense to you before the sell-off, it probably hasn't changed, so keep it intact. Talk to your investment professional if you think your investment strategy needs some tweaking, but otherwise - let it go.
4. exhale
Investing and managing your financial future requires a lot of patience and diligent work, but it should also be fun. After you've done a comprehensive review, it's time to let out the breath and enjoy the things in life that are important to you.
As unsettling as this all seems, it's perfectly normal for the stock market to rise and fall - and we all need to be prepared for that, both emotionally and financially.
Plan to maintain your current long-term investment strategy. Make some small changes to your portfolio that will help you gain a sense of control when you need to. That being said, there is nothing you need to do now that you didn't do a few weeks ago.
