Page 31 - Bulletin Vol 25 No 2 - May-Aug 2020 - 9-2-20.pub

Article | Finance

Investing and Planning in The Age of COVID-19

By Christopher N. Congema, CFP

Landmark Wealth Management

Investing in the markets should normally be viewed as a long-term process. For short-term
periods, successfully predicting the direction of the market is often a lesson in futility. A
long-term process is defined as going through a complete business cycle. Business cycles
are commonly identified as having four distinct phases: peak, trough, contraction, and
expansion. If one is truly a “long-term investor,” there is no need to spend much time and
energy trying to predict and navigate around periods of short-term volatility. One specific
type of risk is called myopic loss aversion. Myopic loss aversion occurs when investors
take a short-term view on their investments for what should be a long-term goal. The
results can often lead to a bad outcome and can make recovery even more difficult.

Some examples of myopic loss aversion:
One example is someone who regularly saves in his company retirement account. During
normal times, an employee routinely adds to his account through salary deferral, buying
shares at various prices. This type of dollar cost averaging, over time, should result in the
acquisition of lower priced shares which then accumulate over many years. Unfortunately,

when events such as COVID-19 occur and there is a selloff in the market, some employees
have a knee jerk reaction, they think it is too dangerous to add to their account and stop
contributions. The exact opposite should be considered, the employee should be happy to
be buying more shares at lower prices. Over time, the extra shares acquired will help the
compounding of growth, resulting in more assets at retirement.
Another example is the investor who feels the market is too high, or feels the economy is
going to slow down and tries to “time” investing by getting out prior to the decline. This
attempt to market time is rarely successful. The primary reason is the market often does
the exact opposite of what the masses expect it to do. Additionally, one would need to be
correct twice in the execution of such a strategy; first when to get out and second, when to
get back in. History has proven it is not “timing the market” that is important but rather
“time IN the market” that makes all the difference. If an investor misses some of the best
days in the market in a given decade, their corresponding returns can be much lower than
the investor who simply stayed the course.

Lastly, take the investor who is overly concerned about the direction of the market. In
March 2020, as COVID-19 cases were increasing, if that investor panicked and sold out on
rd
March 23 he would have missed the ensuing excellent rebound. The S&P 500 had its
best 50 trading day rally in history and rose 37.7%.

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