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Executive Perspectives: Debra Brennan Tagg

The wealth management expert shares how to respond to the COVID-19 situation from an Investments perspective
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Even the most seasoned investors have watched the recent swift decline in the stock market with a bit of wonder—or horror. Bear markets are a well-documented part of normal stock market activity, yet they still seem to surprise investors whenever they happen.

Right now, you are being told not to do many things, which may make you want to do something—anything. When the information updates and the financial markets are moving as quickly as they are right now, it can be challenging to find a strategic move to make, especially when the age-old advice is to stay invested through good times and bad.

Debra Brennan Tagg

We spoke with wealth management expert Debra Brennan Tagg about investment strategies to consider during the COVID-19 crisis. The Brennan Financial Services president said, “While the upside potential of the stock market is what lures us, we should recognize those big downturns—better known as bear markets—have their place.

“They remind us that investing is not a risk-free proposition and that no one knows the direction of the market in the short-term. More importantly, investing does not have a “one size fits all” answer. What is right in my portfolio should have no bearing on what is appropriate in your portfolio since we have different life goals. Now that we are in a bear market, here are five ways you can use it to your advantage.”

Here are five strategies to consider, including one major mistake to avoid.

  1. Assess Your Risk Tolerance: The current downturn has been historic in many ways, so if you are feeling unease about the last month’s declines, you are not alone. This type of market decline usually takes months, not weeks. While entirely unpleasant, it serves as a great test of whether you have too much risk in your portfolio. If you incline to sell your investments because you can’t stand to lose money, your portfolio may have been too risky. If you can hold on through what is currently forecast to be a short-term recession and market downturn, consider reassessing your risk tolerance and portfolio once the concerns about the coronavirus have passed and we are back on even footing.
  2. Reaffirm Your Asset Structure: A well-designed asset base should have layers of risk. If you have the luxury of having an asset base, your various financial goals should be aligned to the timing of when you need to access the funds. We encourage our clients to meet cash flow needs in any upcoming 12 month period with cash, as opposed to withdrawals from invested funds. This current downturn reminds us that things can change in a hurry in ways that we cannot predict and that a healthy level of cash helps us to ride out the downturns in the stock market and economy.  This is especially true for business owners who have the responsibility of managing cash flow and meeting payroll.
  3. Consider a Roth Conversion: Converting Traditional retirement funds (in your IRA or your employer plan) to Roth retirement funds requires that you pay taxes on the amount that you convert. While the share price of your assets may be lower, the number of shares you own is the same. For example, you may own 100 shares of Stock Fund ABC, which was valued at $75 per share and is now valued at $50 per share. Converting those shares to Roth shares would have created $7500 in taxable income, but now will only generate $5,000 in taxable income. You should consult both your financial advisor and your CPA to help you decide if this is a beneficial change to your portfolio.
  4. Dollar-Cost Average: This tried and true investment method is what you are already doing in your retirement plan or with any other program you have set up to invest in methodically. The idea is that you regularly invest (weekly, monthly, quarterly), regardless of what the market is doing. Whether it is high or low, you invest. This is both a form of discipline and a way to take advantage of the natural ebb and flow of the financial markets. Over the past month, you have probably been buying at lower and lower prices, which can create more gain for you when you eventually liquidate the shares in retirement, or at another point in time. This is a good thing and makes you look brilliant right now.
  5. Maintain Your Financial Plan. Here is the one major mistake to avoid: do not upend your financial plan in the middle of a short-term (albeit intense) downturn. Long-term money should stay invested for the long-term, and short-term money should stay conservatively positioned in your bank. I have had many clients and friends ask me over the past week if they should invest in this market since it has dropped in value so much – the proverbial “buying opportunity.” My answer is the same for all of them: if you won’t touch the money for at least three years, and if you had set it aside for long-term investing, and if you can stand the current market volatility, then you can consider investing the funds. However, under no circumstances should emergency funds be invested in the stock market now or at any time. Conversely, your long-term funds have time to recover and should not need to be converted to cash during a market like this, currently suffering both sudden losses and extreme uncertainty.

Your financial plan should be specific to you, your risk and resources, and your life goals. While the risk for all of us is elevated during this uncertain time, the structure of your financial plan should guide you to continue to make sound financial decisions.

Editor’s Note: Debra Brennan Tagg offers securities and advisory services through FSC Securities Corp. (FSC), member FINRA/SIPC, and financial planning services through DBT Wealth Consultants. FSC is separately owned and other entities and/or marketing names, products or services referenced here are independent of FSC. Listed entities are not affiliated with FSC. The views expressed herein are not necessarily the opinion of FSC Securities Corp. and should not be construed as an offer to buy or sell any securities mentioned.


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