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How Winston Churchill’s Wisdom Can Guide You In Managing Your Portfolio During Covid-19

It’s a scary time out there in the markets – from precipitous drops on a daily basis to late evening headlines that futures are falling. In just a few weeks, the S&P has suffered a more than 30% decline, and the Russell 2000 is down 40%. It’s not an easy time to be an investor.

As investors get to the pain point in this market, it would be understandable if they lost all perspective and simply wanted out. Yet market cycle after market cycle has taught us that during these periods of tremendous volatility, it is best to push through the pain.

This is easier said than done. In these challenging times, it helps to look at the words of Winston Churchill, a man who led so many out of difficult times. While his rhetoric has become the stuff of legends, so much of what he said and wrote is still applicable today as we try to find our footing during this pandemic.

“Success is never final. Failure is never fatal. Courage is the only thing.”

You don’t need courage to be an investor in a bull market. When the markets are on a tear, the principles of asset allocation and portfolio construction often don’t seem very important. It’s not uncommon to hear investors complain about their more conservative investments like bonds. To some, managing their portfolio may seem as simple as investing only in the S&P 500 or a concentrated single stock position.

But when the markets are volatile, strategy is key. In portfolio construction, an asset allocation has been stress tested against historical returns. These returns have factored in years including the 2008-2009 Great Recession, the post 9/11 markets, the tech bubble and the 1987 crash, showing that, over the long term, the markets will rebound.

In rough markets, simply staying invested requires courage not to give in to your emotional reaction to what is going on. But market turmoil can also bring opportunity. Valuations are the lowest they have been in years, with significant entry points at which to buy high quality companies. The only challenge is having the courage to buy when others are selling.

But with courage should come discipline. It might serve you to invest in tranches (or smaller amounts) to help alleviate some of the fears of buying at this time.

“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

Investors should remember to maintain a long-term perspective when they put money into the market. While they might feel that during the current crisis, they are throwing good money after bad, it’s all about perspective. In one, three or five years, the investments made today might be the ones that drive future portfolio growth.

Older investors have been here before. Whether it was the tech crash in the late 90s, the post 9/11 volatility, or the Great Recession, investors have lived through turbulent times and survived. Boomers and Gen Xers should take this experience into account in managing their long-term views.

Of course, it can be hard to have perspective when the news is focused on the markets crashing; but most of us are investing for the next 10 – 20 years or longer. As a result, we need to focus on staying invested for the person we will be in the future.

“We shape our dwellings, and afterwards our dwellings shape us.”

While Churchill’s quote on dwellings had to do with a 1943 House of Commons debate about rebuilding after the destruction caused by German bombs, it is prescient in how we are living today. While we are confined to our homes, we should avoid watching investment news channels and compulsively looking at our portfolios, as neither action would provide the best guidance for our financials long term.

Rather, focus on what retirement will actually look like for you. Not all retirees find satisfaction in retirement. In fact, a 2016 Federal Reserve study found that one-third of retirees eventually return to work on a part-time or full-time basis. There is a good chance this sheltering will provide insight into whether you will continue to keep busy or be bored by the idea of retirement. It will be the things you miss while inside your home that might be the framework of how you want to start to build your life in retirement when you get there.

Determining your retirement identity will have a significant impact on retirement success. 

“Do not let us speak of darker days; let us speak rather of sterner days. These are not dark days: these are great days – the greatest days our country has ever lived.”

Ultimately, this pandemic will change who we are. But remember, change is the constant through human history.  If we look at the past 20 years, we have entered the technological age. As any historian will share, the beginning of a new age can often be violent. Industries will die out and the way we do things will go away.  But there are industries that will blossom because of this virus and new inventions and ideas will emerge to change how we live.

So take this time not to focus on the negatives but to look at your financial life as one that is ever evolving. Have courage in the markets and your financial future. Winston Churchill surely would have.

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