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Keystone Global Partners

Keystone Global Partners

Forward-Thinking Wealth Management For Tech Founder

  • About
    • Overview
    • Our Team
  • Approach
    • Our Approach
    • Wealth Planning
    • Investment Management
  • Contact
  • Insights
  • Start Here

Crisis Investing Mindset

We’re navigating unprecedented times right now around the world. Between COVID-19 sweeping through all countries, record market volatility, and most companies being forced to go virtual, – there’s a lot to process. At Keystone, we’re seeing our clients move through a range of psychological emotions. In this post I discuss some tips on mindset and opportunities to take advantage of amidst the market declines.

Our team focuses on helping founders and entrepreneurs maximize their wealth by creating long-term financial plans that support their goals. The unfortunate truth is that a market downturn often hits startup founders and business owners the hardest. These individuals work hard to grow their companies, provide jobs, and capture market opportunities, hoping to someday realize value from their efforts. Having that work jeopardized by a market downturn can be incredibly stress-inducing. Making decisions under such stress can jeopardize the quality of those decisions.

However, there are a few things to keep in mind for your personal finances during these times. Let’s look at a few points that we’ve brought up with our clients in recent weeks.

Behavioral Finance

It’s not a secret that humans aren’t always rational. Just looking at the American public’s overwhelming need to stockpile toilet paper during the coronavirus pandemic. Of all the things to stockpile in the event of long-term shelter-in-place measures, toilet paper isn’t at the top of “necessary” items. Food, water – these things make sense. But toilet paper? Shouldn’t that fall somewhere further down the list of what’s required to survive?

The truth is that we, as people, often experience unprecedented events (like the coronavirus, or record market volatility) as something outside of our control – and we panic. We want to take action and regain control, but may not know what to do. When we are at a loss of what to do, we look to others. However, it seems toilet paper is the most visible purchase and it looks as if there is a mad rush by everyone else to buy toilet paper. Hence, some people stockpile toilet paper.

The same types of concepts can be applied to investing and finance. We see behavioral biases playing a significant role in how some people are reacting in the current market environment. Being aware of your own behavioral biases is a good step towards helping you make the best possible financial decisions.

Let’s look at three strong biases we see pop up again and again:

Herd Mentality

This shows up when investors behave like the larger group with whom they are associated. Individually they may not have made these same choices. This belief is based on the assumption that the larger group cannot be wrong, and it often feels better to be in agreement with and included with a group.

During market volatility, people often fall into this herd mentality. If the media and friends are talking about unknown market bottoms, and conversations with others all lead to discussions of sales, it carries an influence on one’s mind. However, not everyone is on the same plan or has the same risk tolerance. The right thing for one person can be the total opposite of the right decision for someone else. If everyone sells in a panic when the market is down, it can temporarily drive prices away from their fundamental value and be an opportunity to buy at a discounted price.

Loss Aversion

Most investors have a natural aversion to losing money, and studies have shown that people care a lot more about losing a dollar than they do about gaining a dollar. Investors subject to this bias could panic sell during sharp market declines in an attempt to avoid the possibility of further losses, then miss out on the opportunity to participate in the recovery.

Recency Bias

We are more likely to remember something that has happened recently, especially if it makes us uncomfortable. The sprained ankle from yesterday feels more painful than the fractured wrist from ten years ago. If the declines of the last few weeks are on our minds front and center, we will tend to forget the longer-term returns of markets – even if we just experienced a decade-long bull market. During volatile periods, investors are vulnerable to short-term decision making that could undermine their long-term success. We like to highlight this graphic when it seems like the day-to-day market volatility is taking precedence over the long view:

graphic

During market volatility, it can be hard to pull ourselves out of these different biases and focus on our long-term goals. We all have a strong inclination to rationalize our own thoughts, sometimes it is hard to see our own biases. If you find yourself falling into some of these behavioral biases, reach out to a financial planner who can help. This can be critical at crisis periods and under stressful conditions to ensure you are making the best decision for your long-term financial objectives.

Opportunities during COVID-19

You might ask, what opportunities does a decline in the market afford? Challenging times can provide opportunities, we outline a few below:

View The Markets As Having Gone “On Sale” – When the markets decline, equities are “on-sale.” It’s a good time to be buying if you have extra cash available and are planning to invest for the long-term.

Refinance Your Mortgage – Rates are near historic lows right now, which may mean it’s a good time to refinance your current mortgage. If you have a plan to stay in your home for a few years or more, taking time to refinance and lock in a lower interest rate can result in material cash flow savings.

Harvest Losses – When it makes sense, harvesting losses during a bear market can offset tax on future gains. The conditions for this are nuanced but make sure to avoid the wash sale rule and we suggest speaking with an advisor first.

Adjust Your Portfolio Contribution/Withdrawal Strategy – Depending on your situation, it could be an excellent time to increase contributions or temporarily lower withdrawals. If you must source cash from your portfolio, selling fixed income rather than equities is a better choice.

Convert Your IRAs to Roth IRAs – You will save on taxes by converting while IRA account values are temporarily depressed. Converting an IRA to a Roth IRA allows you to continue tax-free growth, enjoy tax-free withdrawals at retirement, and have the ability to leave a tax-free inheritance to your heirs. Keep an eye on your tax brackets and identify whether a full Roth conversion vs. a partial conversation strategy makes sense.

These are just a handful of ways you can maximize your financial plan during a bear market.

Need Help?

Navigating these times is challenging, and talking to a financial planner can help. Our team focuses on serving startup founders and entrepreneurs, and our unique experience may be an excellent fit for your needs during the current environment. We are available for anyone who wants to chat during these stressful weeks or needs financial guidance. Click here to schedule now.

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Will you help me solve any and all financial problems I may encounter?

Yes, and it’s likely we’ve helped others solve similar problems as well such as business sales, QSBS, tax minimization, estate, 401(k) plans, IRS audits, family deaths, disability, real estate, debt, social security, Medicare, health insurance, college, gifting, and most other financial issues.

What types of clients do you specialize in?

We work specifically with tech founders.

What services do you provide?

A relationship with Keystone involves comprehensive financial planning around retirement, insurance, estate planning, tax planning, and investment management.

How do you help clients implement their financial plans?

We firmly believe that even the best financial plan is of little value until it’s implemented. To help you achieve your goals without feeling stressed or overwhelmed by the noise along the way, we will work together to make the necessary decisions then we take care of the execution.

Are your recommendations truly in my best interest?

As an SEC Registered Investment Advisory firm, we are held to a fiduciary standard, which legally requires us to do what is in our clients’ best interests. This differs drastically from some of our competitors who are only held to the “suitability standard,” meaning that our competitors can make recommendations that are suitable but may not be in the clients’ best interests. Our commitment to an honest and ethical culture has allowed us to build deep, trusted relationships with our clients.

What are all the different ways you get paid?

We are only paid via one management fee. We believe this allows us to have an unbiased framework to select the best investments for you and to give you advice tailored to your needs, not ours. We believe compensation drives behavior, and the way someone is paid influences the work they do. Many financial firms have complex fee arrangements; we do not.

Why would I choose you as my advisor and not do it myself?

There’s certainly a possibility that if you put enough focus and energy into it, you could do it all yourself. But like everyone else, your time is limited and most people prefer to focus on family or business. We’re here to free up your time while leveraging our wealth of experience in addressing concerns, presenting solutions, and working toward your financial goals.

What are the benefits of working with an independent advisor compared to a bank or large advisory firm?

Our independent and conflict-free approach allows us to find the best solutions for our clients. This gives you the advantage since larger firms might be compelled to make specific recommendations, sell proprietary products, or may be restricted in the advice and services they offer. We offer guidance customized to your needs and goals which is a personalized level of service, care, and attention larger firms just can’t provide.

Do you use proprietary funds?

At Keystone, we do not use proprietary products. We do not receive commissions or backend fees from any third parties. We do not earn compensation for recommending one fund vs. another. We believe this allows us to have the most unbiased framework to select the best investments for you and to provide advice tailored to your needs, not ours.

Where do you keep my money and how can I see it?

For your convenience and safety, we use Charles Schwab as the custodian for the majority of our client assets. Schwab administers more than $7 trillion dollars and we selected them to care for yours as well based on a variety of criteria including safety of assets, financial strength, and ease of use. As custodian, Schwab holds your funds and provides direct reporting to you. Your funds will be held in accounts under your name and can be viewed anytime online at Schwab.

Our Locations

New York City | Los Angeles | Denver

Keystone Global Partners LLC is an SEC Registered Investment Advisor

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Phone: 646-998-8141
Email: contact@keystonegp.com

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