Investors often hear that they shouldn’t do anything, just stick to the plan, stay the course or just hang tight.
But is that always the right advice?
Sometimes that works, and other times not so well. It is best to think before you act – and perhaps get a second opinion from your financial advisor.
Consider the following, and let’s see if this seems right to you.
Three different types of investors need three different solutions.
For investors who have 10 or more years ahead of saving and investing
It makes sense to stay the course and even enjoy investing in a less expensive market.
- Don’t panic; time is on your side.
- Be practical – buy low and sell high is the plan. With markets down, this is an opportunity for you.
- Consider that selling now is selling when the market is down 27 percent so far this year.
- When the market stabilizes and turns up, do you really want to be on the sidelines?
If you decide to exit, it should be a very short time before you return to investing. Market uptrends happen quietly and tend to build over short time frames, and you can miss out if you decide to wait for a clear entry point. Often, they don’t present themselves with flashing lights like “Buy Now!”
“How” you save and invest matters. If you can afford to save more in your 401(k)/403(b) plan at work or an IRA, that certainly makes sense. Your best action is to keep saving and investing. Your new contributions are purchasing investments that are simply cheaper than they were a couple of months ago. If prices continue to fall, you are purchasing them at even lower prices – buying low is always good.
It’s also a possible time to be opportunistic – maybe not right this second, but if you have some cash on the sidelines, it’s worth a thought about considering how to invest now for the long term and where to put it to work now that prices are lower.
In addition, it’s also a great time to reevaluate “what” you are investing in. It’s not about taking risk out of your portfolio but about making sure you are taking enough risk and getting paid for it. I see a lot of portfolios, and not all investments are created equal.
One thing is clear – know your options and get some advice about the risk/reward tradeoffs with those options. Keep in mind that when time is on your side your mix should be more aggressive with a heavy allocation with stocks.
For investors who are near or quickly approaching retirement
Ask yourself, “What could get in the way of your planned retirement date?
- The biggest threat is often a drastic down-market movement.
- Is your portfolio retirement ready?
- If your portfolio has been hit hard, that should be setting off some loud alarm bells.
It is not uncommon during a long bull market (the last 10 years) for most investors’ portfolios to have drifted or shifted to a heavier-than-normal concentration of stocks. The last decade has certainly been kind to portfolios with large stock percentages – that is, until now.
One of the biggest mistakes that “soon-to-be-retirees” make is taking too much risk by going for growth right up to the point where they retire to maximize their total balance. This can be disastrous and may jeopardize their ability to retire if the market corrects or takes a downturn with the economy.
If this sounds like your portfolio, you should re-evaluate what you are doing and get some help from your financial advisor as soon as possible.
You will need to begin de-risking your growth portfolio in order to protect what you have saved. That means making some drastic changes and orienting your portfolio strategy with your retirement goals. This is something your advisor should be able to help you with. Don’t wait until it gets better. You are off course – changes need to be made.
To avoid this scenario, “soon to be retirees” need to shift their portfolio away from a 100 percent strategy of growth to one of income or a combination of growth & income at least three to five years out from their planned retirement date.
If you are more than five years away from retirement, don’t panic. You still have time to recover some of what the recent market volatility has created. It’s time to be practical.
Make the time and meet with your advisor and get started making changes that make sense to get you on the correct course to securing your retirement. Don’t wait. Taking more losses is not the answer. You have a lot at stake and time to get some help and make some changes.
For investors who are already in retirement
It’s time to reevaluate and consider taking some selected risk out of your portfolio.
- If your portfolio is up, consider taking some gains.
- If it’s down, carefully consider what is down. Does it still make sense for you, or is it time to get back to basics?
In particular, if you plan on utilizing these funds in fewer than 10 years, it’s time to move them into lower-yielding but safer investments so it will be there when you need it.
Still want to invest in stocks? Not a problem, but let’s make sure you have the right percentage of stocks so you don’t jeopardize your regular retirement income. I certainly would not want you to have to go back to work if you don’t want to.
Need professional financial advice? I can help.
As always, please let me know if I can be of assistance to you with professional advice and guidance, including investment options to potentially reduce volatility risk. We can talk over the phone, through email or virtually (live online video chat) through a WebEx meeting, whichever works best for you. This enables you to remain in the comfort of your home and protect your health during these unprecedented times. My direct line is 314.919.1058. Email: David.Weis@cusonet.com.