Some New (Old) Lessons for Investors

In March, retirement and wealth strategies expert Matt Sommer offered advice for investors who had just experienced one of the worst market corrections in decades. Now that U.S. stocks are back above their pre-crash record highs, his advice remains the same: Stay the course, and consider enlisting the help of an experienced financial professional to help manage emotions and stick to a long-term plan.

It feels like just yesterday that I wrote An Investor's Guide to Surviving a Bear Market. And while it has been more than five months since that post was published, to say a lot has happened in the financial markets since then would be a massive understatement.

Back on March 20, my message to investors was to sit tight, remain patient and prepare for a prolonged downturn by improving their monthly cash flow. The S&P 500® Index had fallen 30% in just 22 days from its record high reached on February 19, making it the fastest correction in market history.1 But while the drop was devastatingly swift, it also ended up being exceptionally short-lived. At the time of this writing, U.S. stocks are back above their pre-crash record highs. The “bear market” essentially ended before it even began.

Does that make me question the guidance I put forth in March? Not in the slightest. In fact, my advice for investors in today’s market remains exactly the same: Stay the course. Markets correct, but they eventually recover – sometimes much faster than we would expect.

While I stand by my original message, I’d be remiss to not acknowledge the fact that staying the course through the kind of extremes we have experienced in 2020 requires a special level of fortitude. When you consider the inherent uncertainty and traumatic nature of the global pandemic that caused the correction in the first place – not to mention a contentious presidential election on the horizon – it’s hard to imagine a more disorienting environment for investing.

The good news is, for those who are finding it exceedingly difficult to stay the course – and you’re not alone – there are actions you can take to help regain some sense of control in this challenging environment.

Consider hiring a coach. In my March post, I urged readers to assess their need for advice. I’m a firm believer in the value of professional financial guidance in any market environment, so I’ll reiterate that recommendation here – with some additional context to support my case.

Researchers from the University of Georgia and Ohio State University investigated the relationship between changes in household assets and the hiring – or firing – of a financial planner during the Global Financial Crisis (GFC). Using data from the 2007 Survey of Consumer Finances and an ad-hoc 2009 follow-up survey, the researchers aimed to gauge the impact of the financial crisis on U.S. households. The findings revealed that those households that hired a planner during the GFC experienced a 12.2% increase in net financial assets, while those that fired a planner during the same period experienced a 13.5% decrease in net assets.2

Thus, during the last major market correction, many of those who sought help were able to avoid significant losses and fared much better than those who decided to drop their planner and do it themselves.

While these findings provide compelling evidence for the value of professional advice, they don’t tell the whole story. In my March post, I discussed the role of the financial professional as a “behavioral coach.” Given the extreme swings we have experienced in the markets since that time, I would say this role is more important than ever. In this environment, having a “coach” who can help you manage your emotions and avoid making rash decisions could be exactly what you need to stay the course – and potentially be rewarded in the long run.

Make sure you have ample liquidity. This is another piece of advice I outlined in my March writing. I’ll reiterate it here, again with a bit of added context. Having an emergency fund set aside is generally considered prudent practice just from a household financial-planning perspective, but having ample liquidity is also key to being able to stay the course with your investments. If cash is tight, you may feel compelled to sell stocks immediately after they lose value. While you may feel disappointed with low money-market and CD yields, keep in mind that one of the reasons you have cash set aside is so you have the liquidity (read: flexibility) you need to stay invested.

Let your bonds be bonds. Just as the main purpose of your cash-like investments is liquidity, the key role of fixed income is to buoy your portfolio during times of market stress. Given the ongoing uncertainty around COVID-19 and the likelihood of continued volatility in the months ahead, it’s important to consider whether the bonds held in your portfolio have done what they were supposed to do, and whether they can continue to provide sufficient stability. The complexity involved in making this assessment is another strong argument for seeking the expertise of a financial professional.

A lot has happened since March. And if the extreme highs and lows we’ve already experienced this year are any indication of what lies ahead, the rest of 2020 is unlikely to be uneventful. Change is the one thing that remains constant, and investors who are able to stay the course throughout the inevitable ups and downs are often rewarded over the long term. Furthermore, those who enlist the help of a financial professional (a.k.a., behavioral coach) may be more successful at sticking to their plans, even in the most uncertain and volatile times.


1“This was the fastest 30% sell-off ever, exceeding the pace of declines during the Great Depression,” CNBC, March 23, 2020.
2“Changes in Household Net Financial Assets After the Great Recession: Did Financial Planners Make a Difference?” Journal of Personal Finance, volume 19, issue 1, 2020.