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Steps to Investing without Regret

Steps to Investing without Regret

When investors became aware that the Corona virus could impact US markets, they dashed for the exits. Between February 19 and March 23, just 33 days, the S&P 500 and the NASDAQ plummeted 34% and 30%, respectively. With the economy shut down while millions sheltered in place, the prevailing questions were “how low would they go?”.

Today, we face an uncertain future. There have been more than 190,000 American deaths attributed to COVID-19 and no coordinated response in sight. Unemployment continues to grow, the initial government relief program ended without a replacement, and many small businesses, joined by a growing list of major corporations have declared bankruptcy. The retail, leisure, hospitality, travel, and restaurant industries and their supply chains are being wiped out. Real estate vacancies are growing. And there’s an election that “some people say” could affect the future of our democracy.

It’s hard to imagine that we would react to such an uncertain future by delivering the shortest bear market in history and that the S&P 500 and NASDAQ would reach all-time highs. So, 6 months after the low point of the panic, what’s an investor to do? How do you make important investment decisions that you won’t regret?

How? You take 3 steps, all of which you control. The steps are: 1) identify your goals – what you want your investments to provide and when, 2) develop your investment plan (investment policy statement) to meet your goals, 3) focus on the quality of your decisions – no shoulda, coulda, woulda of what is caused by chance.

1) Identify Your Goals Create and maintain a financial plan that will help you clarify (a) the gap between where you are today and where you want to be financially to live the life you want and (b) what you need to do to get there. Your financial plan will expect your investments to generate sufficient returns in order to reach the level you will need.

2) Develop Your Investment Plan (Investment Policy Statement) Your investment plan serves as a set of instructions you provide whoever is selecting and managing your investments. It describes the returns you expect your investments to generate and the types and levels of risks acceptable to achieve those returns.

3) Focus on the Quality of Your Decisions Recognizing that unpredictable events, such as COVID-19, cause outcomes to be dominated by chance, focusing on the quality of your decisions is more meaningful and something you can control.

The qualities I look for when making investment decisions involve evidence, that is sufficient data to draw a meaningful, i.e. statistically valid, conclusion that supports a solid economic theory. To avoid anomalies, such as data mining, the evidence needs to be found in multiple time periods and in multiple markets. We refer to this as evidence-based investing.

I hope you find this article helpful and welcome the opportunity to discuss how we might make it a little easier for you to live the life you want.

Please share this information with someone who might want a 2nd opinion about their financial situation and let them know that I will be happy to meet with them at no cost or obligation.

Stay safe, stay healthy, and keep washing your hands.