Co-produced with Treading Softly

COVID-19 has been with us for a little bit now. Not a long while, but long enough that its effects are starting to be seen in unexpected ways. One such way I have noticed it having an impact is in the ambient emotions of investors, retirees and the general public.

What is ambient emotion? Great question. Ambient emotion is the background emotion that constantly impacts daily life. It can be felt more strongly in different situations where the emotion may be different from the location you just left. Consider a funeral, for example, you walk into the funeral home and suddenly a wave of sadness and heaviness comes across you. This wasn’t your emotion walking into the building, but the situation and location came with a default emotion that influenced you. Likewise, a casino provides the opposite emotional impact, it’s by design that casinos are positive, risk-taking environments for its clientele.

Take a moment and consider your day to day life. Right now rate the following emotions on a scale of 1: Never feeling this way – to 10: It’s how I always feel.

  • Fear
  • Anger
  • Sadness
  • Stress

For many of you, one or two of these emotions are scoring much higher than others. These are fast becoming the most common ambient emotions, and they are impacting retirees’ choices. It may cause you to become more cautious when investing or to sell out of the market altogether. This would often be a massive mistake. March showed how investors rapidly capitulated in fear, leading the markets to drop over fears the world economy was collapsing. It didn’t. The market has since largely recovered in some sectors due to investors returning. Those who bought when others ran are seeing large gains, but many sold at the bottom and re-bought higher. This is a classic individual investor mistake that can cost you your retirement.

So what can you do when your ambient emotions are working to counter your normal productive investor behavior? Or worse making your unproductive choices more common?

Check Your Emotions Vs. Facts

The hardest part of combating emotions is learning to overcome them. Fear, sadness, and even anger can cause us to make the worst of choices. We often will decide to neglect facts and focus on how we feel. Not a good plan when building your financial future.

I have long used my Income Method to help generate income and lasting returns. It’s a combination of immediate income investing and value investing all mixed with a contrarian approach. This means I often find myself on the opposite side of market sentiment when I see that the facts, the fundamentals, and market sentiment do not align.

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To be a successful value investor, you must be able to put your feelings on hold so you can evaluate actual risk vs. perceived risk. I have discussed this in more detail in a prior article worth reviewing.

Crashing your emotions against the shore of factual research will keep you from running your precious portfolio into a storm it will never recover from. Let facts be your anchor.

Focus on Your Game Plan

Investors are successful when they have a method to their madness. No matter how simple or complex, you need something to guide your operations. I have written many times on my Income Method. It keeps me moored in facts and investing for dividends.

When the market outlook looks bleak and the news is crying “The end is near,” I can look past the noise to find opportunities. Even when the market is crashing, if you’re receiving dividends then you can find places to put your new money to work. Downturns provide ripe ground for increasing your portfolio’s overall yield while also lowering its risk profile. With many sectors (notably high dividend sectors) still strongly lagging the red-hot tech stocks and the general markets, there are still plenty of undervalued opportunities today. Members of our investment community receive our “top dividend picks,” which is published on a weekly basis, to help them keep their capital working for them.

I believe wealth generation needs to keep the dog in front of the cart. Some of my avid readers will remember Sammy, my Bernese Mountain dog. He was the example I used for finding value when others saw only failure. In the midst of market turmoil, you need to take a breath and work diligently to find opportunities or know where to go to be helped.

My game plan is to focus on the aspect of wealth I can control – my dividend income stream – and let it grow the aspect of wealth I can’t control – my asset value. The market decides how much it thinks my portfolio is worth on any one day. I decide how much I demand to receive back from it via dividends. Currently, I aim to maintain a yield of 9%-10% so I have ample income to live off of and some left over to reinvest to keep that income stream growing. For example, the downturn in March allowed me to buy into high-quality names – such as Realty Income (O) that yields 4.8% now, but was available for a yield over 5% back in May. Realty Income is still opportunistic today because many property REITs have underperformed lately. So did many other high yield sectors, and this is where I keep building up my retirement account.

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By keeping your game plan in mind and letting fact rule over emotion, you can help keep the impact of your ambient emotions to a minimum. I have one more point I need to bring up, however.

Focus on What is Next

With your head in the game, not your emotions, and your game plan in place, you must also keep an eye on the horizon. Knowing what you want to do to help you get to where you want to go is important. I have previously written about the collapse of many FIRE members’ portfolios. FIRE stands for “Financially independent, retired early.” These are younger people who retire from daily work life due to extremely high levels of saving and investing.

Many were forced from their retirement due to COVID-19 impacts. What happened to them? Many missed what was on the horizon. When saving while working they kept their eye on the prize. They used facts instead of emotions to work their game plan and they achieved success. After that though, many lost sight of the shore and the horizon. Focused only on the here and now, their portfolio got blown off course.

As a retiree or investor saving for retirement, you must keep an eye on the horizon and the bigger picture. For example:

  1. During the COVID-19 downturn, we made adjustments to our Model Portfolio to capitalize on the sectors that would be winners in a post-COVID-19 shutdown economy. Some of our sector picks were shared in an article posted right here on Seeking Alpha. We recommending an increased exposure to healthcare, technology and renewable energy. Our picks were shared with members of our investment community, and our portfolio adjustments paid off very well.
  2. Currently, I’m taking a view that inflation will kick in late 2022 and possibly earlier. The excessive money printing by the Central Bankers across the globe will increase demand for goods and services, and thus resulting in higher prices. All this money printing comes at a price, and someone has to pay. The price will come in a form of higher inflation, which is an indirect tax that we all have to pay. Inflation can be devastating to one’s savings, especially if you are close to retirement, or a retiree. Therefore I already have started to adjust our model portfolio accordingly, by slowing increasing exposure to stocks that outperform during periods of high inflation and higher interest rates.

These can be hard decisions but they lead to better returns in the long run for myself and my members. Keeping a close eye on the economic trends that can impact your investments is key to successful investing. In fact, I would argue that it’s the most important part of any investment decision you will make.

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Ambient emotions, we all are impacted by them. Walk into a funeral home, a Walmart, or a casino and you’ll feel the emotions change between them. America has a general emotion that is ever present during COVID which has led many to have a default background emotion of stress, anger, and/or fear. We make poor decisions when those emotions run our lives and a simple watching of the news helps illustrate this. It also may be the source of those emotions for some of you!

As investors, we need to combat these latent emotions with factual research keeping your portfolio anchored to facts, not emotions. You need to have a game plan, or craft one if you don’t. Once you have a game plan, we must follow it. While having a game plan that is anchored in factual research, we must not get consumed entirely with the here and now but we must also keep an eye on what is to come.

By taking these steps, you can help avoid the pitfalls of panicked selling, running in fear, or letting others decide when the risk is too high for you. Taking control of your portfolio is a big job, but you can do it. I believe in you and am always happy to help you.

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Disclosure: I am/we are long O. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Treading Softly, Beyond Saving, PendragonY, and Preferred Stock Trader all are supporting contributors for High Dividend Opportunities.