The utility of living consists not in the length of days, but in the use of time.

Michel de Montaigne

For better or worse, many of us have had more time than usual to engage in new or different pursuits in 2020. Even if you’re as busy as ever, you may well be revisiting routines you have long taken for granted. Let’s cover eight of the most and least effective ways to spend your time shoring up your financial well-being in the time of the coronavirus.

  1. A Best Practice: Stay the Course

Your best investment habits remain the same ones we’ve been advising all along. Build a low-cost, globally diversified investment portfolio with the money you’ve got earmarked for future spending. Structure it to represent your best shot at achieving your financial goals by maintaining an appropriate balance between risks and expected returns. Stick with it, in good times and bad.

  1. A Top Time-Waster: Market-Timing and Stock-Picking

Why have stock markets been ratcheting upward during socioeconomic turmoil? Market theory provides several rational explanations. Mostly, market prices continuously reset according to “What’s next?” expectations, while the economy is all about “What’s now?” realities. If you’re trying to keep up with the market’s manic moves … stop doing that. You’re wasting your time.

  1. A Best Practice: Revisit Your Rainy-Day Fund

How is your rainy-day fund doing? Right now, you may be realizing how helpful it’s been to have one, and/or how unnerving it is to not have enough. Use this top-of-mind time to establish a disciplined process for replenishing or adding to your rainy-day fund. Set up an “auto-payment” to yourself, such as a monthly direct deposit from your paycheck into your cash reserves.

  1. A Top Time-Waster: Stretching for Yield

Instead of focusing on establishing adequate cash reserves, some investors try to shift their “safety net” positions to holdings that promise higher yields for similar levels of risk. Unfortunately, this strategy ignores the overwhelming evidence that risk and expected return are closely related. Stretching for extra yield out of your stable holdings inevitably renders them riskier than intended for their role. As personal finance columnist Jason Zweig observes in a recent exposé about one such yield-stretching fund, “Whenever you hear an investment pitch that talks up returns and downplays risks, just say no.”

  1. A Best Practice: Evidence-Based Portfolio Management

When it comes to investing, we suggest reserving your energy for harnessing the evidence-based strategies most likely to deliver the returns you seek, while minimizing the risks involved. This includes: Creating a mix of stock and bond asset classes that makes sense for you; periodically rebalancing your prescribed mix (or “asset allocation”) to keep it on target; and/or adjusting your allocations if your personal goals have changed. It also includes structuring your portfolio for tax efficiency, and identifying ideal holdings for achieving all of the above.

  1. A Top Time-Waster: Playing the Market

Some individuals have instead been pursuing “get rich quick” schemes with active bets and speculative ventures. The Wall Street Journal has reported on young, do-it-yourself investors exhibiting increased interest in opportunistic day-trading, and alternatives such as stock options and volatility markets. Evidence suggests you’re better off patiently participating in efficient markets as described above, rather than trying to “beat” them through risky, concentrated bets. Over time, playing the market is expected to be a losing strategy for the core of your wealth.

  1. A Best Practice: Plenty of Personalized Financial Planning

There is never a bad time to tend to your personal wealth, but it can be especially important – and comforting – when life has thrown you for a loop. Focus on strengthening your own financial well-being rather than fixating on the greater uncontrollable world around us. To name a few possibilities, we’ve continued to proactively assist clients this year with their portfolio management, retirement planning, tax-planning, stock options, business successions, estate plans and beneficiary designations, insurance coverage, college savings plans, and more.

  1. A Top Time-Waster: Fleeing the Market

On the flip side of younger investors “playing” the market, retirees may be tempted to abandon it altogether. This move carries its own risks. If you’ve planned to augment your retirement income with inflation-busting market returns, the best way to expect to earn them is to stick to your plan. What about getting out until the coast seems clear? Unfortunately, many of the market’s best returns come when we’re least expecting them. This year’s strong rallies amidst gloomy economic news illustrates the point well. Plus, selling stock positions early in retirement adds an extra sequence risk drag on your future expected returns.

Could you use even more insights on how to effectively invest any extra time you may have these days? Please reach out to us any time. We’d be delighted to suggest additional best financial practices tailored to your particular circumstances.


It doesn’t take a genius to be a good investor

And geniuses often aren’t. This summer marked the 300th anniversary of the South Sea Bubble when Britain’s South Sea Company went from £128/share in January of 1720 to over £1,000 by August, and then crashed to £124 by the end of the year.

The most famous person to be caught up in the bubble was Sir Isaac Newton. Widely considered a top 10 mind in history, few have contributed as much to the advancement of humanity. Newton is credited with formulating the laws of motion and gravity. He used his mathematical discoveries to prove planetary motion, explain the ocean’s tides, the earth’s equinoxes, and the shape of the earth. This work helped speed the general populace’s adoption of the sun as the center of the solar system. Newton also made advances in telescopes, thermodynamics, was the first to calculate the speed of sound and he developed calculus.

Despite his unrivaled mind, he was faced with a question in 1720 to which he didn’t know the answer, what to do about the South Sea Company? He had always been a conservative investor with a majority of his wealth in government bonds, and a lesser portion in large companies, including the South Sea Company. As the hype in 1720 around the South Sea Company became unavoidable, he had three choices – sell out, do nothing, or buy more of the South Sea Company.

Come April, a share of the South Sea Company had tripled in value to £340. Newton decided this rally was unjustified and liquidated his position, realizing a large profit. Unfortunately for Mr. Newton the story doesn’t stop there, come June a share had rallied to over £700 and Newton decided he had been wrong. Over the next three months he liquidated all other holdings and put his entire fortune into the South Sea Company near its peak.

The price of the stock collapsed as the market reached a consensus of future profitability that was far below the level needed to sustain the elevated valuation. Investors who had bought on margin were bankrupt and Newton saw his fortune decline by 40% from 1719 to 1721. The unpleasant experience caused him to proclaim, “I can calculate the motions of the heavenly bodies, but not the madness of people.”

In reality, the madness was his own and this was an uncharacteristically human moment for a man whose mind was supernatural. We can learn much from Mr. Newton’s investing errors. One of the problems with market timing is you have to be right twice. He made a sale in April that proved timely but picked the wrong time to get back into the market. Net, net he was worse off for it.

Our cognitive biases and thirst for riches betray the best of us. On average, the wisest course is to stay the course – develop a plan founded in reason and stick with it. The plan should change when circumstances change but not when emotions change. Please reach out to your advisor to discuss chancing life circumstances and how they affect your investment plan – and if you are able to stick with that plan, you’ll be smarter than Newton.