We are in some weird times right now. A few weeks ago, I would have never imagined that I would have to plan for our federal, state and local governments to shut down an entire economy due to a pandemic like the coronavirus (COVID-19).
I have been through several economic downturns in the past and, unfortunately, it’s times like this that many investors will panic and make some big money mistakes.
And one of the biggest mistakes is trying to search for the “perfect investment.” Some investment accounts have gotten beat up over the last 20 years, which has led investors to think that there has to be some sort of “magic” investment that will provide big returns with very little risk.
However, looking for the “perfect investment” is a lot like searching for the pot of gold at the end of the rainbow.
Let’s face it, the main mission of the financial industry is to peddle investments. That’s why you, I, and everyone else is constantly bombarded by advisors, institutions, even celebrities with their version of the “perfect investment.”
The real estate guys are saying, “Real estate is the best investment.” The annuity guy is telling me how his money is always protected and can’t lose principal. The stock market guru is telling me of the five stocks I need now to make HUGE returns. Sean Hannity is telling me I need to buy gold and silver now because the economy is destroyed. Oh, and let’s not forget the Bitcoin guy.
They are all squawking about how their investment choice is the best one if you want your portfolio to survive from coronovirus (COVID-19). But who’s telling the truth?
The truth is that these are all “perfect investments”…and they are all the worst investments.
Your best investment depends on different variables: time frames, how close to retirement you are, risk, objectives, emotions, and (most importantly) how much money you have. The more money you have, the more choices you have to invest. The less money you have, the less choices you have to invest.
The other thing to remember is that if there was really such a thing as a “perfect investment,” then there wouldn’t be so many choices. You would only need to have one choice: the perfect one. We wouldn’t need anything else.
Every investment is nothing more than a balance between risk and return. The higher the return, the higher the risk. The lower the risk, the lower the return.
Every investment also has their pros and cons. Those pros and cons are not static; they shift depending on what you and the market are going through. What you thought was a bad thing at the time you were investing, may now be a good thing and vice versa.
An investor must always determine for themselves the positives and negatives of each of their investments.
So as we move forward through this shaky period, here are two things you must consider:
- Stop looking for the perfect investment. It doesn’t exist.
- Stop making investing so hard.
Instead, you should be concerned about building a plan that fits your overall objective.
If you are still working and making contributions into your 401(k), 403(b), or 457, make sure you invest into a broadly diversified portfolio of very low cost index funds. Even after we come out of this pandemic, a broadly diversified low cost portfolio will provide very generous returns over time, just like many times in the past.
If you are close to retirement or retired, you should still consider investing in the market in the same manner as someone contributing into their 401(k). However, you must be more concerned in protecting and providing a reliable retirement income than you are about market growth.
That portion of the portfolio is obviously important, but reliable income is a lot more important.
Going forward, as we make it out of this coronavirus (COVID-19) period, it’s important to think about your next steps and your long-term plan rather than looking for the perfect investment (which will probably end up costing you a lot more money).