Stock market investors urged to focus on long term

The stock market is in uncharted waters, but Hawaii-based financial advisers say the principles of sound investing hold true even in a pandemic:

>> Have a comprehensive financial plan.

>> Be comfortable with your risk level.

>> Don’t try to time the market.

>> Make sure to periodically re-balance your portfolio.

>> If you need advice, seek out a financial adviser.

“A person’s life savings are there to support their cash flow, goals and plans,” said Barry Hyman, regional vice president for Mercer Advisors in Kahului. “Portfolios built around financial plans still support those plans regardless of fluctuations such as the ones we have experienced recently and over past market volatility like ’87, ’00-’02, and ’08-’09.”

He said volatility can be navigated if done correctly.

“We reinforce that downside volatility creates opportunities to take advantage through re-balancing and tax swap opportunities and upside volatility is not a reason to get more aggressive, but instead to take some money off the table, again by re-balancing,” Hyman said. “Stick with the plan and execute the strategy.”

Since there is no way to know the long-lasting impact of COVID-19, investors should remain cautious, according to Kaleialoha K. Cadinha-Pua‘a, CEO and vice chairman of Honolulu-based Cadinha & Co. LLC.

“COVID has disrupted normalcy in almost every aspect of our lives, including investments,” she said. “We believe there will continue to be market risks associated with the economic effects of COVID. More importantly, investors should find concern with the longer-lasting effects of global debt as a result of the methods to stimulate economic growth employed by central banks around the world. The reality of the potential long-term effects of COVID should cause investors to remain cautious, especially given the current market valuations.”

Cadinha-Pua‘a said static and index-based strategies that have been popular over the last 10 to 12 years tend to do well during strong bull markets and encourage investors to ride the momentum wave. But these are different times, she stressed.

“Unfortunately, we are not forecasting calm markets and caution investors against using strategies that are static in nature,” she said. “It’s best to use an active manager who can help navigate through these challenging times.”

Cadinha-Pua‘a said her firm offers three pieces of advice. First, seek professional advice sooner rather than later so a trained professional can help to assess one’s needs and how to best accomplish those needs based on the current market conditions, risks and opportunities. Second, market volatility is one of many risks investors should consider prior to investing. And third, investing often involves emotions, and to help reduce emotional investing, an investor’s approach should be to have long-term investment horizons.

Hyman, likewise, said investors should not deviate from their investment strategies in response to emotions or headlines. The stock market has been quite volatile the last several months with violent moves stemming from updates on COVID-19 vaccine trials as well as the ebb and flow of coronavirus cases nationwide. Individual stocks such as Tesla also have been an emotional investment, but its sharp rises and falls have been testing investors’ tolerance for risk.

Hyman said investors can take advantage of market gyrations, such as the recent plunge and rebound, by re-balancing.

“That means when markets plunge and your allocations to specific asset classes and factors fall below the targets of your investment plan, buy more of them (right when your fear instinct might be saying ‘sell’),” he said. “Conversely, after a rally like we have seen since late March, when some asset classes and/or factors have risen to overweight portions of your portfolio, reduce the over-allocations to get back in line with your portfolio targets.”

Woven into those guidelines, he said, strategically manage the portfolio to take advantage of opportunities created by volatility built into the tax code.

“This approach not only protects investors from falling into the trap of panic selling, FOMO buying (fear of missing out) and costly tax consequences; it also improves performance over a passive buy-and-hold approach without trying to time the market.”