Your Funds: 5 questions to ask before making investment moves now

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This is the time in a market downturn when investors, typically, become their own worst enemy.

Battered by a downturn they promised themselves to withstand, they’re watching little rallies — some are even peeking at portfolios again — matching their investment fortunes with their financial fates at the hands of persistent inflation and thinking now’s the time for change.

They’re worrying that the pain they feel at the gas pump and in the supermarket is going to hit their investment portfolio, and never going away.

The Wall Street Journal released a poll last week — conducted with NORC at the University of Chicago — which showed that 35% of Americans feel dissatisfied with their finances, the highest level since NORC (then known as the National Opinion Research Center) began asking that question in 1972.

Nearly 40% of the respondents said their financial situation worsened in the past few years. The last time more than one-third of Americans said their money situation had deteriorated was during the financial crisis/recession of 2008. And seven of eight survey respondents described the economy as either “poor” or “not so good.”

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In those conditions, people feel a compelling need to “do something.” It’s typically not a panicky cash-out or anything drastic, but a would-be portfolio panacea, a tonic for frayed nerves taken with the idea that it will also have a positive impact.

It would be a dramatic overstatement to assume that all moves made in these conditions turn out badly, but even the ones that end okay often short-circuit long-standing strategies.

If you cut off the regular contributions to your investment or savings plans waiting for “better conditions,” for example, you’re throwing dollar-cost averaging out the window. That practice — where you buy regularly, allowing your money to go further in purchasing shares when an investment is down — tends to be a long-term winner; switching to a market-timing strategy may feel right, but it’s putting your investment process more at the whims of emotion and hunch than regular practice.

It won’t break you or mean that you can’t retire on time or comfortably, but it’s not ideal.

The problem with all these moves is that dealing with a short-term discomfort can have long-term implications.

With that in mind, anyone looking at making moves right now should ask five questions that go beyond securities analysis to provide a fail-safe against emotional investing.

“Is my reason for wanting to make a change real?”

Your perception isn’t always your reality. I have talked to plenty of people who fall into that 40% of Americans saying their finances have worsened in the past few years.

But push them to look at the value of their investment portfolio and home and their job prospects now compared to three years ago and few are truly worse off now. They don’t like what they see happening around them, but their 2022 net worth isn’t below 2019 levels.

Don’t talk yourself into making changes without looking first at whether your gut feelings are representative of real pain or are a passing gas attack.

“What does this move fix or improve?”

Less is typically more when it comes to altering investment strategies. If you put a plan in place — if you have reasons for the securities you own — then any move should be looking to make the portfolio better.

If you can’t come up with a reason why a move improves your ability to achieve your goals and stay on the financial plan no matter what the market dishes up next, don’t just do something, sit there.

“Has my investment strategy changed, or is it just my emotions?”

Most investors understand the old Warren Buffett standard that they should be greedy — and therefore buying — when others are fearful, and worried and nervous when others are greedy.”

Likewise, most consumers love a good sale.

If your time horizon is long enough, the market is currently playing into long-term plans, allowing you to build up more shares for a rebound that lies years ahead. Sure, riding a positive trend feels better, but if your strategy was built to ride the market’s ups and downs, nothing we’re living through now is unexpected.

“What is the long-term impact of any change I make? How do I expect this to play out in five or 10 years?”

Assume that today’s actions have consequences that go beyond the temporary mental relief of “I took charge and made a move,” because they typically do.

If the market scares you right now and you pull money from equities, for example, where can you invest it with the long-term hope of keeping up with inflation, and what will it take for you to decide to put that money back to work. The long-term doesn’t always win out in the decision-making process, but it should at least be considered before a new plan is executed.

“What classic investment practice or timeless justification applies here?”

Rebalancing a portfolio, harvesting tax losses, updating your asset allocation to reflect your current age and circumstances and more are legitimate reasons to make changes to your portfolio at any time, no matter what the market is doing.

But make sure you are actually following through from the strategy. Don’t harvest tax losses created by the market’s recent downturn, but then leave the money on the sidelines, hampering your financial plan. Don’t rebalance by dramatically changing your financial plan, rather than simply adjusting holdings back to the levels you planned for.

“I’m rebalancing” sounds a lot better than “I’m scared,” but they mean the same thing if the moves you make are superficial and you don’t follow through on the plan. If portfolio moves don’t fit with your long-term strategy, don’t make them.

Chuck Jaffe is a nationally syndicated financial columnist and the host of “Money Life With Chuck Jaffe.” You can reach him at itschuckjaffe@gmail.com and tune in at moneylifeshow.com.