Times of crisis can raise our anxiety levels due to uncertainty about factors that we cannot control. In a pandemic like the one we are going through, it is natural for people to have concerns about the economic impact that it may have on their future. In some cases, the immediate reaction is to withdraw investments, but … be careful! A hasty decision can result in a more significant loss. Here we explain the reasons.
Throughout history, the stock market has risen and fallen depending on events that have affected the world. If we analyze most of these, we can see that for each drop; there has been a significant rebound for various reasons. First, governments make sure to develop attractive short-term financing packages for companies, grant aid to affected families, and boost economic activity. In short, they make sure to put in place different measures to restore consumer confidence.
In the case of Rita and Javier (not their real names), they were concerned that their household income would be severely affected due to coronavirus pandemic. Javier owns a real estate consulting firm and had barely been able to work during the quarantine. Rita works in a manufacturing company that matches her biweekly contribution to her salary and has suspended operations for several weeks due to the same situation. Rita had to use part of her vacation days, of which she had very few days left to cover for the days she could not work. Javier has managed to accumulate what he considered to be half of his route to retirement. Still, at this moment, he felt that his salary would not be enough to meet the payments of loans, his children’s school, mortgage and utilities. A good part of the couple’s savings had been invested in home improvements after Hurricane Maria, so the remaining balance did not give them peace of mind. Every day when they woke up, they wondered if they should withdraw part of Rita’s 401k funds and Javier’s Keogh Plan.
This pandemic has resulted in a similar concern for many families. However, it is essential to consider investing in the stock market as a long-term investment or at least for a minimum period of three years. A premature withdrawal of funds at a time when the market is declining could represent a more significant loss since the money is taken out at a time when its value has depreciated. Therefore, it is important to stay focused on the purposes established for the investments.
According to Senior Vice President & Trust Officer at Oriental, Juan José Santiago CPA, CFP, PFS, ESQ., each person must evaluate their situation and their purpose for saving. “You should not act during a panic situation. It is recommended that you weigh your living conditions and future plans. Last year the market grew by approximately 30%. Today it faces a considerable drop that has caused some to decide to invest at discount prices. It is definitely about the supply and demand effect,” Santiago explained.
Rita and Javier decided to apply for a personal loan to consolidate debts and make a single lower payment instead of putting at risk an investment that was essential for the retirement they both longed to have.
For this couple, maintaining a diversified portfolio, avoiding being carried away by negative headlines that influence emotion over reason, a disciplined approach to investment, and evaluating opportunities when prices are low were the aspects that had the highest weight in their decision.
Times like the one we are living should lead us to reflection and discipline.