Weathering the Storm: 4 Time-Tested Investment Strategies

By Michael Schoonmaker - March 2020

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 Investment markets can be unpredictable, especially in times of major worldwide events like the current coronavirus/COVID-19 outbreak. We’re all actively watching the impacts—to the people affected and to the global economy.

If the recent market volatility has shaken your confidence in your financial plan, sometimes it’s best to pause and take a broader view of the situation.

Here are four solid strategies to help reframe your next steps.

1. Know What You Can Control

When global events dominate headlines and fill up newsfeeds, investors often feel compelled to make emotional decisions.

As a result, the thrill of higher returns often drives investors to buy at the peaks, while panic amid declines causes them to sell low and lock in losses.

That's the opposite of what a well-structured investment plan would have you do.

You can't control the markets, but you can control how you react:

Research has shown that your investment success is largely in your hands—your savings rate, your mix of stocks and bonds and how well you stick to your plan during times of crisis.

Instead of reacting to shorter-term market swings, keep your long-term plan in mind. If necessary, you can make modest adjustments to your investment mix.

But if you're still tempted to bail during market downturns, it may be better to limit portfolio reviews to a set schedule, instead of when you may be reacting to headlines.

2. During Market Declines, Be Thoughtful About Next Steps

Buying low and selling high is better for long-term investing. This means investments with lower or negative returns can be a potential buying opportunity. Here are a couple of ways to think about it.

First, you may have a portfolio made up of stocks, bonds and cash investments. If market volatility has caused the value of your bonds to go down and the stocks to go up, you may want to rebalance, or get the percentages back to your original allocation, to avoid too much stock risk. In that case, you'd sell some of your top performers and buy more of the investments whose value has declined.

Keep the Balance in Your Portfolio

Original Allocation

You may have decided to allocate 60% of your portfolio to stocks, 30% to bonds and 10% to cash investments.

Source: American Century Investments.

Out of Balance

If market activity causes the value of the stock portion of your portfolio to increase significantly, you'll have a greater percentage invested in stocks, leaving you exposed to more risk than you intended.

Rebalanced

If market activity causes the value of the stock portion of your portfolio to increase significantly, you'll have a greater percentage invested in stocks, leaving you exposed to more risk than you intended.

Second, you can take advantage of market swings with an automatic investment plan. If you invest a set amount every month, over time you'll buy more shares when the price is low and fewer shares when the price is high.

To fully take advantage of this strategy, known as dollar-cost averaging, you should be prepared to continue investing at regular intervals, even during market downturns.

3. When Addressing Volatility, Your Choices Matter

We’ve always believed that diversification is the best defense against market adversity. By diversifying, you spread your money across many kinds of investments to manage volatility. When one type of investment goes up, another may go down, helping provide stability in your portfolio.

If you are already diversified, the best option may be to hang tight and avoid sudden decisions.

If you’re not, however, you may want to talk to an expert. Investment Consultants can help you determine your best course of action depending on your current situation.

4. Don't Try to Predict the Future; Prepare Instead

No one can predict the optimal time to buy and sell investments. Making money and avoiding losses is more than just guessing at the market's direction. Research confirms your best strategy is not trying to time the market but spending time "in" the market with a well-developed investment plan.

Remember, time is on your side when investing for long-term goals—the chances of generating positive returns in your portfolio improves the longer you stay invested.

For specifics on our investment teams’ take on the market impact of COVID-19, read: The Correction Is Here but Disruption Is Transitory.

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How Long Will the Virus Continue to Affect Markets?

One of the important things to take away from history is the understanding that events like this are transitory. They’re disruptive, they take a tragic human toll and they understandably cause worry in the near term. But they eventually come to an end and recovery begins.

Need help with your investment plan?

Contact us to get started.

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      Diversification does not assure a profit nor does it protect against loss of principal.

      Rebalancing allows you to keep your asset allocation in line with your goals. It does not guarantee investment returns and does not eliminate risk.

      Dollar cost averaging does not ensure a profit or protect against a loss in declining markets. This investment strategy involves continuous investment in securities, regardless of fluctuating price levels. An investor should consider his or her financial ability to continue purchases in periods of low or fluctuating price levels. 

      The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

      American Century Investments is not responsible for and does not endorse any comments, content, advertising, products, advice, opinions, recommendations or other materials on or available directly or via hyperlinks from Facebook, Twitter or any third-party website. Facebook, Twitter and LinkedIn are registered trademarks of their respective owners.