Thanks to COVID-19, we recently saw one of the worst skids in the 124-year history of the Dow Jones Industrial Index. The S&P 500 and other indexes did just as badly.
What should investors do during these trying times? Modifying the six habits recommended by the Monday Morning program to reflect their stage of life will give peace of mind and sound sleep.
At the career beginning
For young investors – between the ages of 25 and 40 – these are the best of times. The Monday Morning program recommends passive investing by buying an exchange-traded fund that mirrors the S&P 500. It is a good indication of the strength of the American economy, the strongest in history.
Bargains abound. Investors have not seen opportunities like these for over nearly two decades.
Like most portfolios, young investors’ portfolios have taken a beating. They will recover.
From the day that the market hit its bottom on March 9, 2009, to February 21, 2020, the U.S. market grew by 398%! About a half of Monday Morning program members are Canadians. Nevertheless, the program recommends against buying a Canadian market index. The Canadian market grew by less than half of the U.S. market during the same period. (137% )
Full recovery is a virtual certainty, although no one knows how long it will take. Younger investors have time on their side. They should invest as much as they can, even though the market may drop even more.
Few young people think about retirement much. They have more important financial goals – objectives like buying a house or a car or a wedding and other big purchases. Borrowing costs are so low today that it makes sense for younger people to tap their credit to allow them to invest. Of course, this does not apply to credit cards.
At the peak of earning power
The Monday Morning program recommends an asset allocation for investors to suit their risk tolerance and their age. A 50/50 allocation between the market and a money market fund is typical. 40/60,30/70, 60/40, 70/60 are other asset allocation ratios that are used by investors.
Being fully invested in significantly depressed markets like we see today has proven to be rewarding in previous similar situations.
Some of the losses incurred in portfolios will be offset by the travel expenses which have been eliminated. Belt-tightening is prudent at a time like this.
So is setting aside money for emergencies. Keeping it in a money market, exchange-traded fund will earn a bit more than a savings account.
Investors may be at the peak of their earning power, but unemployment is rising. It is better to be prepared for a job loss and keep the job than to be unprepared and lose it.
Near career end
There is no reason to be concerned. With the appropriate asset allocation, investors will not need to sell securities at a loss to buy groceries and pay the rent. The Monday Morning Millionaire Program investment philosophy virtually guarantees handsome returns.
Further, people at retirement time or close to it have many years ahead of them. The life expectancy of a 65-year-old living in a developed country is about two decades. The longest recovery time of depressed markets is five years and much shorter than that usually.
For those who did not save enough
A University of Michigan Institute for Social Research study found that 40% of senior Americans put off their retirement during the Great Recession of 2008. The world faces a similar situation now.
People in this group will need to put off retirement or, if retired, they might want a part-time job to make up for low savings.
Cutting back on expenses does not need to lower happiness. How much is enough?
Will we be alright?
It is difficult to save and invest at a time like this but savers and investors who do, will be richer, much richer when the inevitable rebound takes place.
Please note that the Monday Morning Millionaire Program contains opinions only. It does not provide any investment advice or endorsements.
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