THE WORLD HAS CHANGED: SHOULD I CASH OUT MY INVESTMENTS?
As originally appeared in The Jerusalem Post on May 14th, 2020.
“Life is not shrinking for me; it’s morphing into a whole new world of possibilities. ” -Peyton Manning
Recently I was having a phone conversation with my oldest sister and after lots of nostalgia, we got on the topic of, what else, Corona. We were talking about all the death and self-inflicted economic devastation and then she put things into perspective. She said, “What can I complain about. I still have a job, a great family, and we have food in the refrigerator- as long as someone feels safe enough to go to the store!” Then she continued, “I am so grateful to be living in Israel. The great and mighty US is being brought to its knees, and everyone is looking to Israel as a place of stability.”
While I disagree with the part about the end of America, the fact that the world is looking at Israel as a source both of stability and hope for a potential cure for Corona is not new.
A few years ago I wrote, “The world has gone mad. Terrorist attacks throughout Europe, the move to bring down US President Trump, UK elections, Saudi Arabia taking a tough stand against Qatar, the horror that has befallen Venezuela. Who would ever imagine that Israel has turned into an island of tranquility! Investors are jittery and wondering how all of this geopolitical chaos will impact their investments.”
How to proceed?
For the last 3 months, I have received countless calls from asking if they should sell out their investment portfolio and sit on cash until the craziness passes over. Many actually believe that this will never pass, and we are living in a new normal. As I quoted before, the world is always in a state of craziness. The difference here is that in an effort to combat the virus, there has been with few exceptions, global unanimity to close down the economy. I don’t subscribe to the view that this is the new normal, and as economies have slowly stated to re-open, markets have reacted positively. As such my advice is to do nothing.
It’s important to stay the course and follow the investment plan (Learn More here) that you have created. To repeat: The world has always been a very dangerous place; pundits have always been calling for market crashes, and over time the market moves higher.
That’s not to say that you should leave your portfolio on autopilot. There are certain industries that may reap huge rewards, such as telemedicine companies, while brick and mortar retail stores continue their march into oblivion. Will the way we work, i.e. more and more remote work and less office time be sustainable? I know the analysts think the answer is yes, but I am far less certain, and as the recent lockdown showed, individuals crave social interaction. I can’t help but feel for my in-laws as they were more or less stuck in their apartment for 2 months, unable to see their children and grandchildren, and of course their favorite son-in-law! Zoom is great but it’s not like the real thing.
Retirement investors
While I believe that most investors should just stay the course and do nothing, retirees are different. For retirement investors that don’t have a large net-worth and can’t afford the possibility of a second 20-30% loss, pragmatism should win out. For these investors, we may be entering a period of time where capital preservation takes precedence over capital appreciation and they should make some changes in the way their portfolio is allocated. I say this for 2 reasons. 1- They don’t have the luxury of time on their side and the ability to rebuild their wealth in the event of a market drop and 2- because the most important aspect to investing is being able to sleep well at night and not be nervous that a sudden market drop will wipe out your savings.
Markets can drop any time and 10-15% drops are common, and if you don’t have the ability to weather that storm, you have no business having so much stock exposure anyway.
It will drop
Let’s say you disagree and think that you can accurately predict the market drop. Now what? From my decades of experience including the last 3 months, you may be able to predict the drop, but you’ll miss most of the bounce back. It’s almost inevitable that that’s what will happen.
If you are worried that the corona inspired economic meltdown will cause even more damage than we have already experienced, speak with your financial advisor to make sure you have the proper asset allocation for your risk level and long-term 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, SIFMA. For more information, call (02) 624-0995 visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il.
