It’s probably safe to say most investors are very aware of the recent downturn in financial markets. In addition, you probably want to understand the impact of Covid-19 on your portfolio. To be perfectly honest, I’d love to give you a specific, realistic, and quantifiable answer. Unfortunately, my crystal ball seems to be broken. Simply stated, it’s impossible to pinpoint the financial ramifications of coronavirus to your portfolio.
I’m telling my clients to not panic. Panic can lead to emotional decisions based on fear. The end result is often selling at market bottoms and/or underestimating risk. Making financial decisions when you’re in a state of panic increases the odds of making a mistake with your portfolio.
Although shifting your positions may be a good move, you should take a step back and look at the overall picture in a logical way. If you remove emotion from the investment equation, you help protect yourself from emotional decisions.
Your Pain Threshold
At Maestro Wealth, we use an advanced software program to determine your tolerance for risk. Also known as your “pain threshold”, it walks you through a series of questions to help determine how you handle market fluctuations. Rather than panicking and being reactive to the impact of Covid-19 on your portfolio, take this opportunity to reassess your pain threshold.
Making changes to your portfolio based on current news is rarely the right decision to make. Rather, allow headlines to serve as a dose of reality. Being extremely uncomfortable with actual changes in your account(s), could be a sign your pain threshold has changed. It can be easy to say: “I’m comfortable accepting a loss of up to 4% for the potential of gaining 8% in my portfolio”. It’s quite another thing to actually see a decline reflected in real dollar amounts.
Afterall, no one likes to lose money.