Ric Edelman. (Photo: Melanie Waddell/ALM) Ric Edelman. (Photo: Melanie Waddell/ALM)

Americans are responding to the coronavirus pandemic with bad investment strategies, poor career choices and wrong financial decisions, all of which are avoidable, according to a report released this week by Ric Edelman, founder of Edelman Financial Engines.

“Americans without a sound investment strategy often fall victim to behavioral finance biases that cause them to make bad decisions,” Edelman said in a statement.

In the report, he notes that during the 2007–2009 credit crisis, millions of investors lost their jobs, and it took a decade for the unemployment rate to return to pre-2008 levels. Millions more sold their investments during the lowest periods of that era, sustaining massive losses from which many never recovered.

“COVID-19’s impact on the economy has been and will continue to be unprecedented,” Edelman said. “It is therefore essential that you consider the many ways it may alter your life and be willing to adjust your investment and personal finance strategies accordingly.”

The report examines the virus’s effect on the economy and a wide variety of factors that affect Americans’ financial and personal lives.

Edelman argues that the U.S. economy will likely not fully recover from the once-in-100-years financial crisis and grinding unemployment levels until a vaccine is in wide distribution.

According to the report, the coronavirus lockdown has left many Americans struggling to pay their mortgages and rent. This, along with the shift to remote work, will adversely affect commercial real estate for a long time to come, with negative implications for urban markets.

The pandemic has also exacerbated the already serious retirement savings gap in the U.S., according to the report. Reliance on Social Security has reached record levels just as the Social Security Trust Fund is being depleted.

The report notes that investors are behaving euphorically, evidenced by the S&P 500’s trading at 22 times projected earnings. But Edelman advises caution as stock prices may fall, and the declines could be comparable to those seen in 2007–2009 before they begin to recover.

What makes this possible, he writes, is that no effective treatment, cure or vaccine has yet been achieved, and all too many companies will continue to experience profit declines until most Americans are back in work and feel safe to congregate.

Edelman lays out his firm’s four-pillared investment approach in the report:

  • Continually maintain a properly diversified portfolio, one that features 15 to 17 major asset classes and market sectors, in addition to U.S. stocks
  • Maintain a long-term focus as history has shown that market values have consistently risen over longer periods
  • Rebalance strategically
  • Use low-cost, tax-efficient investments.

The report includes a 10-question investment readiness quiz that can help investors determine if they’re in danger of panicking the next time stocks prices fall.

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