In times of uncertainty, financial goals should be long term
If you are worried about a large market drop, it may mean that you have an incorrect asset-allocation.
By AARON KATSMANCollege graduation during the outbreak of the coronavirus disease (COVID-19) in California(photo credit: REUTERS/MIKE BLAKE)“Remember, half the doctors in this country graduated in the bottom half of their class.” – Al McGuireThe biggest issue facing the country right now is what to do with schools. Should they be shut to prevent a widespread second wave of the Corona, or should schools stay open to finish the year and only schools where someone has tested positive be closed. In speaking with many parents they keep talking about how the school year was a wash. They go on about how since the week after Purim their kids have basically learned nothing. I like reminding them that for all intents and purposes the school year unofficially ends before Pessah. Let’s face it. After the Pessah break kids go back and every week there is something on the calendar; Holocaust Remembrance Day, Yom Hazikaron, Yom Ha’atzma’ut, L’ag b’omer etc. which disrupts their learning. If you think about it, our kids pretty much finished learning what they were supposed to learn. Even those in high-school, while it’s been challenging, have been studying for the matriculation exams, and most of what they were supposed to cover this year will be on the tests.It’s been quite an unusual year, but in terms of substance, our children have done okay.MoneyWhat is the connection between the end of the school year and your money? It’s the need to forget about the here and now and start to focusing on the bigger picture and the long-term. While this year it looks like there will be no official grades, other than for those in high school, in a regular year we all look forward to the last day when the kids bring home report cards. Just like when raising kids we may get frustrated in the short-term, and not do cartwheels when a child brings home a 55 in history, if we take a slightly longer view we realize that whether or not the child gets the 55 it’s pretty irrelevant to adulthood. In fact, believe it or not yours truly didn’t set the academic world on fire. Every now and then I think about how funny it is that I write a weekly newspaper column and wrote a book that was published by McGraw-Hill, no one could have ever predicted that!Always keeping me on an even keel, it’s my dear wife that reminds me of my academic background and that I shouldn’t get too angry with our kids when they bring home a bad grade. A bad score on a test isn’t the be all and end all, and that even a child with mediocre grades can succeed in life. Knowing that my kids only read the first paragraph of my columns to see if they are mentioned sure makes it easier to write this!It’s the same with your money and investments. Don’t get caught up in short-term market volatility and start panicking if the market drops 25-30%. I know that what we have gone through over the last few months has not been for the faint of heart, but the stock market is almost back to where we were pre-corona. Continued financial media over-analysis of market movements isn’t healthy for investors. I may sound like a broken record but markets have corrections frequently and it’s the investor that doesn’t panic that makes the money and builds wealth over time.Don’t try and time the markets. I will repeat a quote I’ve used in the past from Mark Hulbert. “If you think you will know it when this bull market finally comes to an end, you are kidding yourself. The vast majority of professional advisers who try to get in and out of the stock market at the right time end up doing worse than those who simply buy and hold through bull and bear markets alike. Even those few who beat a buy-and-hold strategy during one period rarely beat it in the next one.”If the pros stink at market timing why do individual investors think they can do better? If you are worried about a large market drop, it may mean that you have an incorrect asset-allocation. Based on your goals, needs and age maybe you are over-exposed to the stock market. If you can’t afford short-term losses in your stock portfolio, you may need a more conservative approach.As I have mentioned once or twice, by far and away the most important aspect of managing your finances is to make sure that your portfolio is in line with your short and long-term goals and needs. Then make sure the money is properly allocated so you can accomplish your financial goals.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States.Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, FSI. For more information, call (02) 624-0995 visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il.
