How a second wave of COVID-19 could affect your investment risk tolerance

During the best of times, there is always a level of risk that comes with investments. You can review trends and make educated guesses on how an investment will perform, but ultimately, you never know how exactly it will play out.

Certain investments have always been considered more conservative (less risky) than others, but even these can be vulnerable to loss during times of economic uncertainty, such as a second or third wave of COVID-19.

What to know about investment risk tolerance during a another wave of COVID-19

Defining your personal level of risk tolerance is a decision that only you can make. However, because of the uncertainty of how another wave of COVID-19 could affect the market, we want to provide you with some insight that can help you adjust your level of risk tolerance if necessary.

Here are some things to consider about how COVID-19 can affect the market and your risk tolerance:

• Bear markets happen — The simple truth is that every bull market comes to an end. Whether it is due to a pandemic event like COVID-19 or a housing bubble bursting, the market goes through natural ebbs and flows. The good news is, bear markets tend to be shorter than bull markets and average low losses compared to the average gains during a bull market.
  Never panic sell at the first sign of a bear market. If your retirement or savings goals are far off, your investments should have plenty of time to rebound and grow. However, if you are uncertain about the stability of some of your investments, you can always talk to a financial advisor for guidance.
  
• Diversify your portfolio — A diversified portfolio is more resistant to volatility than if you put all your eggs in one basket. Stocks tend to perform well during periods of economic growth, but bonds and other fixed-income securities are more stable when the market is bearing down.
  Investing in mutual funds, exchange-traded funds and foreign investments can add diversity to your portfolio to help it survive a variety of economic climates.
  
• Review your retirement plan — As mentioned earlier, if your retirement or long-term savings goals are far off, usually a bear market is nothing to worry about. However, if you are retiring within the next five years, you might be more concerned. Still, this is not a time for panicking. It is a time for readjustment.
  For example, you can look at your plan (preferably with a financial advisor) and determine whether you need to retire a year later than you planned or if you can save more, spend less or adjust your investments to help keep you on track.
  Regardless of what you choose, it is important to keep your investments. Panic selling can result in fees and higher taxes that you are not prepared for, and it can cause you to fall short of your retirement savings goals.

Talk to a ProVise CFP® professional about managing your finances through this difficult season

COVID-19 gives rise to a number of concerns, but you should not have to worry about your savings and investments. At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can work closely with you to develop a strategy for getting through this season and the rest of your financial future.

Our team can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.

Are you ready to talk to a professional about managing your personal finances? Contact ProVise today to schedule a complimentary consultation.