As I sit in my concrete bunker surrounded by hand sanitizer and disinfectant wipes, a wall of toilet paper ready to thwart any potential Coronavirus threats, I feel the need to press pause on regularly scheduled mortgage education and address a topic that has flared up in newsfeeds over the past few days: investing when the market has "crashed".
Although I joke about my bunker stash (I can't even find hand sanitizer to stock), personal finance is a highly individualistic and serious subject full of licensing requirements and government regulations. I did what any person not wanting to bring the Financial Industry Regulation Authority fire down upon them and called in the experts. Long-time trusted advisors Nick Stone and Craig Harris were both able to offer some advice to my investment-curious audience who feel that they may be missing out on a Golden Goose Egg during this bear market.
Stone provided examples over the history of time where markets have typical cycles of ebb and flow, and this was bound to come full circle even before the Coronavirus scare (which surely did compound the effect). Putting our economy into the analogy of a marathon, no one sprints 26.2 miles to a finish line. Instead, there are steady-set paces accompanied by throttles and breaks. We may not have seen the bottom of this yet since stocks are priced on what expected earnings are, and companies have yet to report on their current quarter. It could be speculated that markets will dip even a little more. Only time can tell. A piece of advice offered is to maximize on your current contributions such as 401K, IRA and other tax-friendly opportunities versus a narrow lump-sum investment to allow for dollar-cost averaging.
Harris emphasized a good time to invest when the market is in a down point. "Buy low and sell high" is not a catch-phrase but a pillar of investing. Regardless of market conditions, ANY time is a good time to start investing, but there is certainly an advantage when we are in a low market since you can get a little more with your cash. Even at the highest point, like where we just were, there is still a good strategy to be employed for investing your money. Nothing is ever guaranteed, but the market is designed in a way that, over a long enough period of time, your money should grow. He stressed that individual situations and goals are the primary driving factor in how the portfolio is built and how your money can be invested wisely.
Both discourage dumping money blindly into crashing stocks today in hopes of getting rich next week. The singular most important thing you can do with your money is to have a goal in mind versus chasing performance returns. It can be retirement, paying for a child's college, purchasing a home, etc. but you HAVE to know what you're working towards in order to get there. The last thing you want to do is be cash-poor and investment-rich without a plan if you need access to that money in the short term. This knowledge is especially important for my mortgage clients who may need to hang on to some cash to close on a new home.
There's a big myth out there that financial advisors are expensive, but they're really not. There are traditional brokerage accounts where you pay a small commission on everything bought and put into your account and every transaction made on your behalf. There are also fee-based accounts where you forego commissions and pay an annual fee that varies between firms, typically averages out to be less than 1.5 percent of your invested assets. If you find yourself shopping around for a financial advisor, ask about their cost, make sure they are also a licensed stockbroker so you are diversified instead of pigeonholed into one certain commodity, and ask them if they would invest you like they would invest their own family. It's a relationship of trust, and you have the ability to establish how you want that relationship to be shaped, whether it be by twice a year comprehensive reviews, weekly phone calls or somewhere in-between.
Important to remember when you see big movement in the economy is this: What do you want to invest FOR, not what do you want to invest IN. That mind shift will help you make smart financial decisions for your future.
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