How to do it right


By Richard Eisenberg, Next avenue Editor

Rudyard Kipling wrote: “If you can keep a cool head when everything around you is losing theirs …” And that sums up a key rule for investing: Make your decisions about when buy and sell and What buy and sell by thinking rationally and not emotionally. It is not easy.

But my “Friends Talk Money” podcast co-hosts Terry Savage and Pam Krueger and I, as well as financial advisor Kendrick Mattox of Edge Capital Group in Charlotte, NC, shared our top tips for doing it in our last episode. . (You can listen to it anywhere you get podcasts.)

For Krueger, the founder of the financial control service Wealthramp, it’s about having an umbrella before it starts to rain.

Prepare for a downturn in the stock market

In other words, don’t panic when the stock market goes down – and it will go down sometimes, maybe a lot, and maybe for a while. Instead, mentally prepare yourself for what you’ll do when we head into a bear market, then do what you said you would do.

Right now, when the market is mostly buzzing and the economy is poor, now is a good time to make smart and rational investment decisions.

Mattox said, using Krueger’s umbrella metaphor: “You have to look at your wallet before it starts to rain. After it starts to rain, or while it’s raining, it’s too late.”

Mattox notes that we have had essentially 12 years of good stock and bond markets. So he and Savage – the famous personal finance columnist and author – say on the podcast: Now is the time to do what you can to shore up your emergency savings and, if you can, your retirement savings, while you can afford it.

Mattox tells retirees to “make sure they have three years of income and cash for their living expenses” – easier said than done. The worst thing you can do as an investor, according to Mattox, is to sell your stocks when the market crashes because you are forced to sell them to pay for your daily expenses.

Tapping into retirement funds to pay daily expenses

Data suggests that many people have recently used their 401 (k) retirement savings to cover their daily expenses. A report from Fidelity Investments showed that 17% of people with 401 (k) have outstanding loans from them and 2% have 401 (k) hardship withdrawals in the first quarter of 2021.

Savage is concerned that some investors are feeling “not only calm, but also scary” these days. They assume that stocks are only increasing. Many don’t remember the terrible bear market of the early 1970s or maybe even October 1987. (A bear market is when stocks are down 20% or more.)

As a person who Is Remember those dark days, says Savage, it’s important to understand that every drop in the stock market is not a buying opportunity. It could be the start of another plunge, she notes.

“I think people have lost touch with a certain part of reality,” Savage said on the podcast.

Krueger is a big fan of making sure your investment portfolio is split as you planned, with a specific percentage into stocks, bonds, cash, and real estate. The rise of the market may have imbalanced your holdings, tilting more sharply towards stocks than you expected, simply because these are the investments that have gained so much value.

Is your investment portfolio imbalanced?

As Krueger says in the podcast, “You can suddenly see that your stock allocation is higher than you thought because you haven’t looked and because the market has gone up.”

The solution: rebalance your portfolio, to get things where they should be. A rebalancing umbrella, if you will.

If you are working with a financial advisor, this pro can help you do that.

If not, you may be able to arrange automatic rebalancing through your 401 (k) company or mutual fund or ETF (exchange traded fund). “It’s like setting an alarm clock,” says Krueger.

Savage recommends rebalancing your investments quarterly or every six months and ideally doing this automatically for you.

If you don’t want to sell some of your stocks and then put that money into bonds or the bank, because the returns are low there, then move some of your riskier growth stocks to safer, more conservative, and paying dividends, she said. .

Another way to help invest rationally rather than emotionally is to do what I recently advised my son, Aaron, to do: set a target price for your stocks, then sell some or all of it. these actions when they reach it. Aaron has some money in a cryptocurrency stock and a target price, I told him, will prepare him to sell some or all of his stock when the stock hits that point.

It’s a way to avoid being greedy when the stock price goes up, and then watching sadly and painfully the stock plummet and the value of your holdings go down like a deflated balloon.

Savage says few investors have the discipline to sell stocks when the market is up and not panic when it is going down.

“If people had self-discipline,” she said on the podcast, “a lot more people would stick to their diets.”


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