Remember This When Investing During a Pandemic

A few weeks ago, we had the opportunity to host a client webinar focused on the recent market volatility and what it means for your investment journey.  We were pleased to welcome Dr. Apollo Lupescu to offer his expert perspective in these unprecedented times.  This blog series will break down our engaging conversation to address your most pressing concerns.

Apollo Lupescu is a Vice President at Dimensional Fund Advisors, where he started in 2004 after finishing his PhD in economics and finance at the University of California, Santa Barbara. During his tenure at the firm, Apollo has gained experience in a wide variety of practical subject matters. He is currently Dimensional’s “secretary of explaining stuff.” In this role, he frequently presents around the country and the world at financial advisor professional conferences and individual investor events. Prior to joining Dimensional, Apollo had his own consulting firm, which provided services to the US Department of State and the White House on a variety of projects. In addition to his PhD from UCSB, Apollo has a BA from Michigan State University, where he competed in and coached water polo.

While I would have loved to hear about Apollo’s water polo career, we dove right in to your top questions.

What implications does the COVID 19 Pandemic have for Investors?

The biggest implication Apollo addressed as it relates to the current crisis is the resurgence of the behavioral side to investing.  He recalled the remarkable run the stock market has been on over the past 11 years since the end of the financial crisis in 2009 and through the end of 2019.  Volatility was incredibly low through this time period while the market rose steadily.  Investors were happy to see growing values on their portfolio statements and grew accustomed to market conditions that are not realistic.  People became very comfortable buying into the market.

Fast forward to March of 2020, the COVID 19 Pandemic and a sharp stock market decline put us in bear market territory at a rapid pace.  All the sudden our human instincts are kicking back in.   Be sure to watch the video for Apollo’s entertaining description of how fear is beneficial when an animal is chasing us.  We are hard wired to pay attention to things that put us in danger and the current health and economic crisis certainly fits the bill.  Is there something dark lurking around the corner?  This fear and uncertainty can lead investors to panic sell.

However, the rational side of investing says you should buy low and sell high.  From that perspective a 30+% drop in the stock market should be viewed as a positive buying opportunity rather than a reason to flee.  The emotional side is quite the opposite and the reason our behaviors in times of fear do not always lead us down the path of being a successful investor.

Are your investments driven by rational thought or emotion?  As financial advisors, part of our role is to acknowledge the emotions we are all experiencing through these challenging periods but disentangle them from our investment decisions.  This takes discipline, diligence, and having a plan in place to confidently navigate the temporary set backs that will inevitably occur on your investment journey.

Related: Three Questions Investors Had During the Stock Market Decline