May 25–During uncertain economic times, the unpredictable act of investing can be made even more unpredictable, local experts say. Since the onset of the coronavirus pandemic crisis in the United States, money decisions for average investors have certainly gotten more complicated.
Vegas Inc spoke with Anthony Valeri of Nevada State Bank and David Garcia of J.P. Morgan Chase & Co. for pointers.
Have a goal in mind
For those who might be new to investing, it’s always good to have a plan, Valeri said.
“Especially now, where it’s likely to be a volatile environment for quite a while, it’s important to have a goal and have some patience,” said Valeri, the investment director at Nevada State Bank. “Even if your money fluctuates, you have to keep your eye on that longer-term goal. This year is going to be highly uncertain, probably for the rest of 2020.”
Valeri said there’s one stat that he likes to use to illustrate to clients how, over time, investing makes sense no matter what’s happening with the economy.
“Having a disciplined approach to investing works,” Valeri said. “I like to tell people, and this goes back to the Great Depression, that … even if you bought at prior market peaks, the peak before a big recession or falloff, you’d make money–between 4% and 8%–five or 10 years out. There has been only one exception to that in all that time.”
Spread it out
Valeri said it’s a good idea to spread investment buys out over a few months.
“You would do that to reduce the risk of buying at a high and, if the market goes lower, you’re putting some of that work into lower prices,” he said. “It smooths out your average cost.”
Valeri said to remember to have a systematic approach and stick to it.
“Since late March, the rebound in the market has been very strong, which just goes to show that you can’t time the market,” Valeri said. “That’s just a futile effort. Have a plan over a few months and put it to work.”
Don’t make the mistake of assuming the markets have hit bottom
At the end of trading on February 14, the Dow Jones Industrial Average closed at 29,398.
Going into that weekend, coronavirus news was out there, but few likely would have imagined how it would affect the stock market–and the overall U.S. economy–over the course of a few weeks.
By the end of the trading day March 23, the Dow closed at 18,592, effectively having lost more than a third of its value in just over five weeks.
By the end of trading May 14, however, the Dow finished at 23,625, having made back a sizable chunk of those losses.
“We’re telling our clients to not just think we hit that bottom and things are now automatically going to go up,” Garcia said. “Over 20 years, we’ve seen that the markets are going to be up 6% to 18%, but the range of returns in one year can range from negative 40% to positive 60%. We don’t have a vaccine right now, so we don’t have full clarity on this. There could be a second wave [of COVID-19]. We don’t know what it will look like in two months.”
What sectors are ripe for investing?
While it’s anyone’s guess as to what tomorrow or next week might bring with investments, Garcia said there are “megatrends” that continue to show promise when looking at the big picture.
He said three investment areas stand out: digital transformation, health care innovation and sustainability and renewable energy.
“We’re looking to see a lot of growth in those three sectors,” said Garcia, who works with J.P. Morgan Private Bank clients in Southern Nevada. “The pandemic has already accelerated our move from the physical to the virtual world. We’ve seen Amazon having taken off, and there’s already a lot more focus on developing and providing vaccines and treatments against viruses. Governments are now a lot more involved in those efforts.”
The well-publicized collapse of the energy markets [just look at what a gallon of gasoline is going for these days], Garcia said, has caused people to move toward renewable energy plays.
“Looking at 5G, that’s paving the way for the future,” Garcia said. “Looking at remote surgery and augmented reality and autonomous driving, those are going to be core drivers for revenue. In some of these sectors, we’re expecting mid-double-digit returns and increases in earnings.”
Keep investing in your retirement
More than 400,000 Nevadans have filed for unemployment benefits so far this year–historic numbers to say the least.
With that type of uncertainty–and loss of steady income, at least temporarily–investing in one’s retirement can seem unimportant.
Assuming some safety nets are available for daily expenses, however, Valeri said it’s not the time to stop contributing to a retirement nest egg.
“If you have roughly six months of living expenses, I would contribute to that investment plan,” Valeri said. “Investing is not a point-in-time exercise. There will be difficult periods, but you want to stay committed. Part of that is compounding interest, which is a real driver of long-term growth and is really a key growth for fixed-income investments.”
Valeri said he had several clients who pulled money out in March, which he said was probably not the best decision.
“I understand that it was an emotionally difficult time,” Valeri said. “Some of the gains we’ve had since March might be some of the best gains we see in several years when talking about single-day or single-week gains. If you miss out on just a few of those really good days, it can really adversely affect you in the long run.”
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