COVID-19 has either exposed the holes in financial plans or emphasized the importance of having one. Amid a pandemic or unpreceded crisis, few financial plans work out exactly as you imagined them to, but it’s not your fault. It’s difficult to plan for sudden salary cuts, layoffs, and health emergencies. And often this leads to making emotional decisions out of fear or stress leaving a devastating impact on your balance sheet.
Whichever boat you’re in – it’s not too late to get back to smooth sailing, but it might be time to seek out a professional to get your plan in place and avoid making the common mistakes so many do during times of uncertainty. Fortunately, advisors like the Wealth Strategists at Waddell & Associates are here to offer a calming hand on the wheel to navigate through these rough waters and help you feel confident in your financial future.
“We believe it is ideal for an investor to work with an advisor prior to an event like this and build a relationship so the advisor can get to know those emotional biases,” says Teresa Bailey, a wealth strategist at Waddell & Associates. “If you’ve missed that and need to start a relationship now, it’s still not a bad time. People tend to bond during difficult times.”
Waddell & Associates is a fee-only wealth management firm and doesn’t sell any products for a commission. When a client comes on board, they have access to a surplus of resources instead of a single advisor. Unlike other options, the firm knows that money touches every aspect of your life and offers lifestyle consulting. Waddell & Associates’ wealth strategists take into account everything that touches your balance sheet before offering advice.
It’s proven that people have a bigger emotional reaction to the thought of loss rather than the pursuit of a reward. In other words, people hate losses more than they like gains. So, during a recession, you tend to see people hedge their investments instead of using this time as an opportunity.
“I’ve seen a lot more people wanting to have tighter control over their investment decisions after the action happened, meaning they started to pay attention to their investment allocation after the market had dropped. The ability to prevent the loss had already passed, but people are hyper-focused on trying to rewind time,” Teresa explains.
Unfortunately for those who don’t have a trusted advisor, this could lead to selling everything in the portfolio and making the loss permanent. If you are a long-term investor, and you remain invested in these down markets, historical market performance indicates you will typically see your assets regain some, or all, of their value. According to Teresa, the COVID-19 event triggered this strong desire to prevent loss because we lost so much at once: the loss of control, the freedom to go places, and the freedom to see our friends and family.
On the other hand, some go the opposite way and pursue a reward during a downturn. The advisors at Waddell & Associates have noticed people being overly aggressive as they chase the hot stocks or an investment their friend posted about online. “The problem with approaching the stock market in this manner is that quite often, when everybody is doing something it pays off to do the opposite,” Teresa explains.
It’s easy to get sucked into that herd mentality, but it does have its consequences. She shares that her team recently saw a trend of people who mistakenly purchased a stock they thought was the popular video conferencing app Zoom because the ticker looked like it would be Zoom. However, the stock was for a small company that hadn’t made money in years, and it saw its stock prices soar.
Another emotional financial mistake people continue to make during this pandemic is overspending. While you may think you have things under control with your investments, your cash flow and credit card accounts could be taking a serious hit. With folks stuck at home, it’s easy to get sucked into buying things you’ve been putting off buying for the house with a quick click on Amazon. Teresa warns that it could be months down the road before you see the effects of overspending unless you are keeping close tabs on your accounts. “Everyone is set up online now, and there is no balancing of the checkbooks,” she says.
To prevent yourself from making one of these financially devastating mistakes, it is important to talk through what your ultimate goal is with an advisor. “You have to understand your own emotion and pay attention to the ‘why,’” Teresa asserts. When you recognize the “why” it may cause you to pause for a moment and think about what you’re doing; therefore preventing you from making any rash in the moment decisions – like selling all of the investments in your portfolio.
Overall, if you can get your financial plan in place, are thoughtful about who you take your advice from, and can begin to pinpoint your own emotional responses, navigating financial decisions during the COVID-19 pandemic will be a little less overwhelming.
Your best plan of action is to reach out to a wealth strategist like Teresa, someone who can coordinate all aspects of your finances while taking the time to get to know you.
Find out how the wealth strategists at Waddell & Associates can help you manage your money by calling (615) 370-0750 or visit waddellandassociates.com. Or schedule some time to chat with Teresa directly. Just click here.
Source: Psychology Today
This article is sponsored by Waddell & Associates.