During the past several months, the entire global population has witnessed the negative effects of COVID-19. All aspects of our daily lives have been disrupted. The disruption has been particularly difficult for those who have endured the loss of a job, salary reduction, worker dislocation, or other economic hardship. The global pandemic has been a sobering reminder of how quickly our financial lives can become unraveled. This explains why it's critically important to help protect our retirement dollars and other long-term investments. What steps can you take in order to assure the financial security of your family? How can you be prepared for the next financial crisis? Let's discuss the details.     

Rainy Day Fund  

Arguably, one of the most common mistakes people make concerning financial security is their inability to save money for an unexpected family emergency or sudden loss of income. One of the best lessons we can learn from COVID-19 is the fact that our personal financial situation can change very quickly. The only way to be prepared for such an event is to plan ahead. Throughout our lives, we have all heard how important it is to save for a “rainy day.” However, how many people are actually prepared for a financial emergency? According to a 2019 survey conducted by Bankrate[1], only 25% of US adults have an emergency fund reserved for financial emergencies. The average balance of the fund is only adequate to cover living expenses for three months. Based on the Bankrate survey, it’s very apparent that most Americans are woefully unprepared for a financial crisis. Of course, this may be one of the reasons why many people are struggling in the current environment. 

If you want to be prepared for a personal financial emergency, you may want to consider moving a small amount of money from each paycheck and place the funds in a separate account. This could include accounts such as a bank savings account or money market mutual fund. Continue to make regular contributions to the account until you have enough funds to cover six months of living expenses. Though it will depend on your individual situation, often financial professionals agree that six months may be an adequate amount to cover the majority of personal financial emergencies. Having a rainy-day fund can help prevent you from tapping into your retirement account when troubled times inevitably occur. If you don’t have an emergency fund, it may be a good time to consider establishing an account within the next few months. Although it will probably take several months to fully fund, at least you will have an account. You can feel much more secure the next time a personal financial crisis enters your life.

Diversify Your Investments 

“Don’t put all your eggs in one basket.” How many times have you heard this overused piece of guidance or wisdom? Despite the fact that it’s certainly a time-worn cliché, this may be one of the best pieces of financial guidance you will probably ever receive. Are you following this guidance in your own portfolio? Are your investments properly diversified? If you are somewhat confused by the subject of portfolio diversification, you are not alone. In response to a 2019 CNBC investment survey[2],25% of the respondents were not familiar with the subject of portfolio diversification. According to the same survey, only 34% of investors actively monitor their portfolios for the purpose of asset diversification.

Portfolio diversification should not be viewed as a complicated investment tool. On the contrary, a properly diversified portfolio may only require a small amount of effort along with periodically monitoring your account. If you want to build a properly diversified portfolio, the best place to begin is to familiarize yourself with each of the four major asset classes. The list includes stocks, bonds, cash, and alternative assets. The majority of investors are familiar with stocks, bonds, and cash. However, alternative assets are not well known among most investors. Alternative assets could include several different investments such as real estate, commodities, precious metals, foreign currencies as well as others.

In addition to educating yourself, a well-diversified portfolio should also take into consideration your investment objectives. For example, are you investing for retirement? Maybe you are saving for a new home or college education for your children. You might be investing in a short-term event like a family vacation, new car, or upcoming wedding. Whatever the case may be, your portfolio will be impacted by the length of your investment time horizon.

Because portfolio diversification is such an important aspect of your long-term success as an investor, you may want to consider seeking the guidance of a licensed professional. A licensed professional can answer your questions concerning diversification. Additionally, the licensed professional can help develop a proper investment strategy based on your goals and long-term objectives.

Don’t underestimate the benefits of an adequately structured portfolio. This should definitely be at the top of your investment “to do” list. If you need help in this area, reach out to a licensed professional in order to review your portfolio. Start diversifying today.   

Asset allocation does not guarantee a profit or protect against loss in declining markets. There is no guarantee that a diversified portfolio will outperform an anon-diversified portfolio or that diversification among asset classes will reduce risk.

Maintain A Disciplined Approach 

What do the world’s most successful investors have in common? What are the main characteristics that separate successful investors from the rest of the crowd? They have a great deal of patience and discipline in terms of following their investment strategy. Successful investors have the innate ability to “stay the course,” even during periods of extreme financial distress. These are the special qualities shared by those investors who have mastered the art of profitable investing. 

Of course, it’s easy to maintain a disciplined investment approach when things are rolling smoothly. However, it’s quite difficult to remain disciplined when the financial markets enter a period of extreme volatility. COVID-19 is a perfect example. Prior to the start of the pandemic in February, the global economy was moving forward, and the financial markets were trading near an all-time high. However, the financial markets began to move sharply lower when it became apparent that the virus was morphing into a global pandemic. During this period of extreme volatility, successful investors had the discipline to maintain their investment strategy and stick to the game plan. For example, they continued to make scheduled contributions to their accounts, they reviewed their portfolios, and avoided the temptation to make any drastic changes to their investments in response to the sudden upheaval in the financial markets.   

Unfortunately, it’s not uncommon for many investors to hit the panic button when the stock market experiences a substantial decline. Many financial professionals agree that one of the best courses of action is to remain focused on your long-term objectives during times of extreme market volatility or personal distress. As humans, we all possess a natural desire to “fix” things when they appear to be broken. This explains why people may have a difficult time becoming successful investors. When the stock market suffers a sharp decline and our portfolios are losing value, our natural instinct is to immediately “fix” the problem. While this will depend on your individual situation, often times the best course of action is to do nothing. In the long run, maintaining a disciplined investment approach can help generate the best results.  

Final Thoughts 

We have no idea how long the global pandemic will continue. It’s impossible to accurately forecast these types of events. Hopefully, this will become a once-in-a-lifetime occurrence that will not permanently alter our daily routines. This would include such things as our working environment, socializing, shopping, entertainment, dining out, worshipping, education, etc. The list is endless.  

Despite the uncertainty that exists in our daily lives, we still need to move forward with our long-term financial strategies. In fact, it’s probably more important than ever to maintain a course of action as it relates to our finances. Eventually, COVID-19 will hopefully become a distant memory and we will be in much better financial shape if we continue to focus on our financial well-being.  

If you are interested in improving your financial health, visit Erik Cascio. Erik is a registered representative with MML Investors Services LLC. For the past 12 years, he has provided value-added service to his clients in the area of financial services. As a financial professional, Erik specializes in helping clients develop specific investment strategies in regard to asset allocation, retirement solutions, and tax-efficient strategies. He is experienced in helping investors understand complicated financial matters. Today, he is helping his clients stay the course and stick to their financial game plan as they weather the storm of the COVID-19 crisis. 

Erik Cascio is a registered representative of and offers securities through MML Investors Services, LLC. Member SIPC ( www.sipc.org), Golden Tree Wealth Partners is not a subsidiary or affiliate of MML Services, LLC, or its affiliated companies. Golden Tree Wealth Partners is located at 1 north franklin street suite 2470 Chicago, IL 60606. The views and opinions expressed are those of Erik Cascio. Erik Cascio’s views are not necessarily those of MML InvestorsServices, LLC.   CRN202210-272524

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