While 55% of Americans have money invested in the stock market, the current volatility brought on by the pandemic has left them uncertain how to navigate a way to their current needs and future goals.(1) According to Real Intelligence, LLC’s CEO Jeff Mount, that instability has many investors reacting emotionally and indulging in outdated strategies that jeopardize their future plans. “Under old school, traditional financial planning strategies, market uncertainty can drive investors to indulge in bad habits regardless of their investment goals,” Mount says. “But more modern strategies can help investors create ‘what if’ scenarios with financial planning tools that allow you to confidently change assumptions based on current changes to strategically plan for desired future investment outcomes.”
There will always be bull and bear markets that are driven by extreme financial upheavals like depressions, recessions, and other crises. The challenge for investors is to have the tools to constantly reimagine their investment course in the current rough seas of a pandemic. That means being able to accurately project how putting money in or taking it out of the market based on current needs will affect short- and long-term planning outcomes. But if major market fluctuations are more than just background noise, how does the average investor set their sails to weather that current liability?
Market Volatility Spurs Investor Bad Habits
Financial uncertainty driven by the COVID-19 pandemic has led to the U.S. stock market’s loss of three years of gains in a matter of weeks.(2) Earlier this year, the S&P 500 index fell from 3,386 on February 19 to 2,305 on March 20–a loss of 32 percent.(3) This Great Recession-level descent is impacting the 14% of families directly invested in individual stocks and the additional 35% of investors with 401K retirement accounts. The atmosphere remains volatile as the S&P 500 fell 1.7%, the Dow by 2.2% and the Nasdaq by 1.5% based on fears of a long-term recession.(4)
Reports show investors within 15 years of retirement are pulling money from target-date funds accounting for a 44% outflow from 401(k) plans totaling some $9.4 billion.(5) Although countless survey’s show extreme concern about retirement savings among this group, there is a growing worry across all age groups.(6)
he current financial chaos feels different to investors with no real certainty about when markets will recover, with younger investors allocating 25% of their portfolios to stocks.(7) As many investors worry and act on bad habits of pulling money from investments, others are snapping up stocks at bargain prices, which temporarily pushed the
the S&P 500 about 26% higher.
In fact, TD Ameritrade and E*TRADE Financial saw a combined 937,000 new investor accounts alone in the first quarter with 50% more buy orders than sell orders.(8) The problem–according to investment experts like Mount–is that this shows an underlying emotional decision by many average investors that may actually be indulging reactive bad habits rather than sound investment planning backed by good data and habits. Despite this, Mount makes it clear that there are ways to take the emotion out of the decision process and let human-centered strategic thinking drive decisions to reach individual outcomes.
Human-Centered Strategic Planning Leads to Good Outcomes
Best-practice investment organizations (like FINRA) do provide insights and advice on investment approaches like dollar cost averaging, which has an emotionless upside but also potential downsides.(9) However, Mount says that good habits should start with an understanding of where one wants to end up from his or her investments. “You can then run a series of soundly calculated ‘what ifs’ that can guide your thinking on navigating real financial investment decisions in the present,” Mount says. “This helps you to understand where each course will lead to a financial future destination based on outcome goals.”
Mount further explains why this takes using best-practice tools that are simple and intuitive to enable investors to customize their investment profile based on individual circumstances and needs–such as the company’s new Dynamic Mapping app.
“Dynamic Mapping enables strategic decision making and immediately displays the consequences of these decisions,” Mount says. “Given the pandemic facing the nation, there is no better time to enact significant changes in investment behavior to prevent financial devastation the next time a crisis occurs.”
This tool acts as a very intuitive financial calculator, offering Americans a “thoughtful way to enable financial planning independence,” Mount says. Financial-assistance resources are arguably now more important than ever for investors looking to establish purpose-based investment objectives and good habits for navigating a current- and post-pandemic market. Although the Dynamic Map app is not a full financial plan, it does the heavy lifting of executing complex calculations and delivering the output in a manner that is easily understood.
“Having a real-world calculation application that provides you with accurate uncertain scenarios changes how you think about investing and reaching outcome destinations,” Mount explains. “This eliminates the significance of benchmarking, risk profile questionnaires, and other outdated ideas like rebalancing to create an accurate benchmark that’s customized to your specific needs and purpose-based outcomes for financial planning.”
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