The stock-investing chief at $485 billion Schwab offers 4 crucial tips for weathering the coronavirus storm - and outlines how to keep making money

• Omar Aguilar of Charles Schwab Investment Management talked to Business Insider about what investors need to know during this period of heightened volatility, both in terms of strategy and their own biases.
• Along with his role at the $485 billion investment firm, Aguilar has spent years studying behavioral finance to understand how what makes investors tick.
• He acknowledges that it's hard to stay rational at times like these, but says traders should be guided by their personal risk threshold, rather than fleeing to safety or hunting for bargains.
• Visit Business Insider's homepage for more stories.

A lot of veteran traders and experts say the market's recent skid is unlike anything they've ever seen. But Omar Aguilar is focusing on how familiar it is.

Not only is Aguilar the chief investment officer for equities at Charles Schwab Investment Management - which manages $485 billion in assets - he's also an expert in behavioral finance. And when he looks at how investors have been acting lately, the market volatility seen in March suddenly doesn't feel so new.

"Participants' behavior seems to be moving in the same way that you would expect in any other crisis, whether it's a recession driven by financial issues or shocks or natural disasters," he told Business Insider in an exclusive interview. "A lot of the typical data that drives markets basically stopped, and everything was drawn to the behavioral part of the market."

He added: "That tends to explain situations like the ones we have now."

With that in mind, Aguilar has four pieces of advice for anyone trying to make sense of the most volatile market stretch in recent history.

(1) Selling is irrational - but buying can be, too

Everyone wants certainty about the trajectory of the COVID-19 outbreak and the global economy, but no data can provide a definitive answer. The expert consensus is that selling at times like these is a mistake that locks in an investor's losses.

Aguilar agrees that this is the "worst possible time" to sell, but adds that no matter how good the opportunity looks, you still have to be careful about what you buy.

"Anybody that is making long-term investment decisions during this time period, obviously, is trying to anticipate what may happen next or is just doing it out of something that is more of an emotional impulse," he said. "It is driven by other biases, not necessarily by data-driven decision making."

That doesn't mean all of those decisions will be wrong, but it does mean investors need to be more careful than ever when they spot tempting opportunities.

(2) Focus on risk, not just price

If you've been watching your portfolio drop in the last few weeks, you might be tempted to go in and de-risk it immediately. Aguilar warns against doing that, saying that when volatility is high, there's a good chance that's going to be counterproductive. He says it's better to wait it out before making changes.

"When you're in the ocean and you have several waves hitting you, even if you try to swim, it's going to probably to just get you tired as opposed to get you anywhere," he said. "What we're not necessarily advocating is for people to try to change the course in the middle of these volatility."

While it might be tempting to buy stocks because they're cheap or bonds because they're defensive, Aguilar argues against a price-based approach. Since investors have just experienced the pain of a lot of risk coming home to roost at once, he says they should think about how much risk they want in their portfolios and make smart adjustments.

"Our advice for clients is to evaluate the level of risk, to continue the plan of systematically rebalancing the strategies to their risk level, and to continue to focus on the long run. So if you have a balanced strategy that has certain objectives for the long run, make sure that those are within the tolerances that you set up in advance," he said.

(3) Don't rush to safety, think long-term

"Most of the time, people try to leave the longterm maturities and credit in lieu of government bonds and for short term maturities to try to be very risk averse in these time periods," Aguilar said.

He continued: "What do we advise in these environment is to try to not necessarily just go for the high quality safety assets that I think everybody's trying to go to, but look beyond and try to just expand in areas that probably you didn't have before."

Aguilar argues that a better strategy would involve investing in high grade bonds or other areas of the bond market that will have more upside as markets return to something like normal.

"Most of the time, what you would expect is that as things go back to normal and start recovering, that you actually get the benefits of that deprecation of the long part of the curve of fixed income," he said.

(4) Avoid "home bias"

US stocks brought in better returns than the rest of the world during the bull market of the 2010s, and the dollar is once again showing strength as the market goes through a tumultuous stretch. That might contribute to a "home bias" Aguilar warns against.

"Emerging markets ... are the ones that are going to drive us out of the recession first," he said. "The way that we discuss this with clients is to basically look for an entire set of diversification across all asset classes, and make sure that their representation is there."

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