Prepare Your Portfolio and Your Life

Torri Donley

The COVID-19 epidemic has changed all our lives.  Just as we hoped for a slowing of the disease in the summer and a return to normalcy, increasing cases across the country leads to questions about how life might be impacted for the rest of the year and into 2021.  How […]

The COVID-19 epidemic has changed all our lives.  Just as we hoped for a slowing of the disease in the summer and a return to normalcy, increasing cases across the country leads to questions about how life might be impacted for the rest of the year and into 2021.  How can you prepare your portfolio and your lifestyle to the resurgent risks?

1. Accept that COVID-19 will be impact us longer that we thought 

From the very beginning, stay-at-home orders and restrictions were sold as temporary measures, but they are turning into longer-lasting, lifestyle-changing rules.  Initially, it was common to make plans three months out, hoping things would be back to normal.  With your portfolio, you might have thought the same thing: This is a temporary induced market event; things will be better in six months. 

What the resurgent virus is showing, is that until there is a vaccine, a therapeutic or until society finds a better way to cope, this virus will impact economic activity likely well in to 2021.  That could also mean continued volatile markets over that longer period. 

Since 1900, the average recession has lasted about 15 months.  The recession of 2020 officially started in February.  Investors need to be prepared for a prolonged economic impact. 

2. Re-evaluate risk

The risk you were willing to take at the beginning of the year might not be the same amount of risk you are willing to take now.  That is OK as we are facing some of the biggest fundamental threats to the economy in the history of the country.  How much risk are you willing to take? It’s something you consistently should be addressing in your portfolio.  Are there sectors you want to avoid or companies to get out of?  What about your income plan in retirement?  Should you turn on Social Security earlier and let your investments weather the storm?  The banks recently went through a stress test to gauge their ability to handle a prolonged downturn. It’s time to put your own retirement plan through a similar stress test. 

3. Instead of burying your head in the sand, ask more questions

Times like these require being more informed.  For the past decade, investors have been rewarded for doing nothing as the S&P 500 rallied over 400% from the market lows of 2008.  The next decade might require more knowledge to navigate.  Some of the winners of the past might not be the same winners of the economy of the future. 

The most important thing is to have your eyes open to the world around you.  Ask your adviser how much risk you are exposed to.  If you have international or small-cap holdings or complex financial instruments, ask why.  Any strategy, any investment, and any adviser should welcome questions and be willing to help communicate through these challenging times.  Sometimes staying the course with a long-term strategy makes sense, but it is important to consistently evaluate your options and stay informed of the changing landscape. 

4. Tax advantage of lower tax rates now

The federal government spent an overwhelming amount during the first and second quarter of this year to support the economy.  This included trillions in relief to individuals and businesses alike.  The federal debt has ballooned (at $26.5 trillion and counting), and finding a way to repay that debt in the decades ahead will be challenging.  One obvious way to repay that debt is through higher taxes.  This could include higher income taxes and higher capital gain taxes.  It might make sense to harvest gains in some of your non-IRA accounts.  Resetting your tax base allows you to take advantage of historically low capital gains tax rates, and the after-tax asset could provide advantages in your long-term income plan. 

You also may want to consider a Roth conversion with assets that have been negatively impacted by volatility.  Consider paying taxes on a portion of your IRA now if your account is lower, and when the position recovers you will enjoy the tax-free benefits of the Roth. 

5. Embrace a different phase in your retirement

I spoke with a client recently who just retired, and she mentioned how much the social distancing and restrictions have taken the joy out what she had been planning.  She was planning trips and vacations and more time with friends — and now that was all on hold. 

As disappointing as these adjustments have been, push yourself to try something new and find new ways to enjoy the world around you.  Try renting an electric bicycle and go for ride on the beach boardwalk.  Organize a virtual game night via Zoom.  Rent an RV and take that road trip you always wanted. 

Did you know there are over 12 world class museums you can visit online? 

And there are 33 National Parks you can scout out virtually? 

This is a unique phase in your life. Try to find as much joy as you can during the craziness. 

6. Contain the noise 

As much as we need to stay informed, educated and up to date in the world, make sure you don’t overdo it.  It is so easy to let the issues of the world overwhelm us and consume our attention and energy.  Look at your investments, watch the news, but not all day every day.  Decide on conscious ways to take care of your mental health and limit any of those engagements that overwhelm you. 

As we embark on this next phase of the COVID-19 epidemic, it’s important to have our eyes open about the challenges ahead but face it with courage and grace and make the best of it. 

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