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Chiara Ghigliazza
Work & Money

5 Money Strategies for Turbulent Times

A down market still can offer opportunities to build toward wealth. Here’s how.

This might sound crazy, but as I watch all of the stock market turmoil, I miss being an adviser on the frontlines working to calm my anxious clients.

I began my career as an adviser in 1987 when there had been an unprecedented drop in the stock market, leading to a crash. After receiving my securities license, I became a financial consultant with Fidelity Investments in Dearborn, Michigan, near Ford Motor Company headquarters.

Back then, many of our clients were factory workers and new investors who took on higher risks because they thought they couldn’t lose as the stock market reached new highs. Unfortunately, when the market crashed their lack of financial experience and sophistication caused them to sell their holdings at the lowest point of the market downturn. In contrast, our wealthiest clients would call during these downturns and buy as many blue chip stocks in companies with consistent long-term growth and profits as their cash reserves allowed.

Why did these groups behave differently? Most likely because the wealthy group had the benefit of prior experience or had access to a private wealth manager or family member who could provide them with insight and perspective. Meanwhile, the group made up of factory workers may have responded based on their fears and emotions, having never experienced a severe stock market decline

I finally understood what my poker-playing uncle meant when he said, “Scared money can’t make money.”

In the words of my investing hero Warren Buffett, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” In other words, to be a successful investor, you can’t follow the crowd.

Today, I’m the founder of WealthyU, where we teach Black women how to turn their income into wealth. I left the investment industry to do this. Closing the wealth gap for Black women became a personal mission and one of the core values of the WealthyU community. We help our members adopt a wealthy mindset by viewing problems as opportunities. So, with the markets in a downturn as the world deals with the novel coronavirus, consider these savvy market moves for turbulent times.

Invest in your retirement accounts. This may sound counterintuitive, but if you are more than 10 years away from retiring and have not saved enough, now is the time to play retirement catch-up. You can benefit from dollar cost averaging, which means your monthly contributions to your retirement plans will buy shares at a much lower price than in the recent past. The real benefit to this approach is the average cost of all your shares will be reduced and, as the market goes up in the future, you can increase your overall return. However, if you are close to retirement and will need to access to your money in the next five years, you should be reducing your exposure to stocks. You can talk to a certified financial professional about your specific situation.

Review your investments. Mutual funds have professional management and allow you to invest in a range of stocks (versus investing in a single stock), providing diversification to reduce your risk. However, make sure you also diversify your overall portfolio to include small-, medium- and large-cap funds. Cap is short for market capitalization and simply means the total market value of the company. This is helpful because they respond differently to economic cycles, which can reduce the volatility of your investments overall.

Rebalance your portfolio if needed. This is another way to reduce your risk and exposure to the ups and downs of the stock market. The stock market has increased significantly since the 2008 recession, and your investment accounts may have a greater percentage in stock or stock mutual funds than when you originally invested. A simple formula for a conservative portfolio is to do the following calculation: 100 minus your age equals your stock percentage. For example, 100 - 55 = 45 percent in stocks and the balance (55 percent) in bonds. The older you are, the less you should have invested in stocks because you do not have the time to recover your losses if you need access to your funds.

Research potential investment opportunities. If you have the cash to spare and are sure you won’t need the money for at least five years, research which companies may benefit from the current climate. For instance, some companies are helping to deliver services virtually as people do more social distancing, and they could be companies to consider as an investment. Proceed with caution, recognizing that the stock market could decline further, and you shouldn’t expect an immediate return on your investment.

Look into refinancing your mortgage, if you have one. The Federal Reserve lowered interest rates, which means that we should eventually see lower rates on mortgages and other loans. A reduction in your interest rate can reduce the amount of your mortgage payment or make owning a home more affordable. Whether or not you should refinance depends on the cost of refinancing. Fees can be thousands of dollars and at least 2 percent of the mortgage amount. For example, a $400,000 mortgage could cost you $8,000 or more to refinance. And even if you reduced your monthly payment by $200, it would take you more than three years to break even. Typically, you shouldn’t refinance unless you are going to stay in your home for at least five years.

The uncertainty in the market is being caused by external forces beyond our control. This will likely mean more volatility in the near term. No matter what, remember you cannot save your way to wealth. Stocks and stock mutual funds have higher long-term returns historically than other types of financial products like savings accounts, certificates of deposits and money market funds. If you have concerns about your specific situation, remember you can work with a certified financial professional.

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