You’ve no doubt heard about the recent market volatility
related to Coronavirus and the reaction to this unexpected pandemic.
Nobody likes sitting on their hands when it feels like they
should be doing something, but acting without thinking has never been the wiser
path to choose. The challenge quickly turns into identifying the things you
should think about doing, and the things you shouldn’t.
While it’s not hard to see that there will be an economic
impact, it is important to remember that the financial markets are not the
economy. It’s even more important to remember that time in the market usually
works better than timing the market.
According to Blackrock, 24 of the 25 worst trading days happened
within one month of the 25 best trading days over the last 20 years. Missing
those “best trading days” can have a drastic negative impact on your overall
By trying to time the market in volatile times like these,
you run the risk that you miss those days, thereby doing more harm than good.
If you shouldn’t sell your investments and try to time the
market, what can you do? The first strategy is to rebalance.
Rebalancing your portfolio means to sell investments that
have gone up to purchase more of the investments that have gone down. This allows
you to buy low and sell high on a relative basis. It also maintains your
overall allocation you decided on when you created your financial plan.
Rebalancing assumes you had the right overall stock/bond
allocation in the first place. If the markets have genuinely spooked you to the
point you are considering selling out of the market, or already have, then you
probably didn’t have the right allocation to begin with.
Now is the time to revisit your “risk tolerance” since it is no longer a hypothetical scenario.
Time horizon is another component that determines your
asset allocation. If you need money from your portfolio in the next 5–10 years,
that portion shouldn’t have been in stocks to begin with because of how quickly
stocks can go down.
A proper asset allocation requires that you coordinate
your financial plan, risk tolerance (aka volatility tolerance), and your time
horizon. It’s never too late to get this part right, but make sure you read the
Much like the media uses fear to generate eyeballs and
clicks, so too do annuity salespeople use fear to sell annuities.
They can play on your fear and tout the ability to “never
lose money” and will have their charts to convince you an annuity is the
greatest thing since sliced bread. We all know guarantees like that must come
with some serious tradeoffs.
An annuity may or may not make sense for you, but don’t
let the recent market performance make that decision for you. Annuity
salespeople do not have to act in your best interest the same way a full time Fiduciary does.
A Fee-Only advisor has a legal obligation to act in your
best interest at all times and can be a thinking partner in times like these,
especially if you are navigating retirement
You can learn more about the difference between Fee-Only
advisors and “fee-based” here.
Before Tax Day
There are a few strategies you can pursue before you file
your 2019 taxes. If you have earned income, you can still contribute to an IRA
or Roth IRA for the 2019 tax year.
Also, you can make Health Savings Account contributions if
you are covered by a qualifying health plan. Other than the Roth IRA, these
strategies can lower the amount of tax due on your 2019 tax return.
Interest rates usually drop when stocks do, and this
episode has been no different. This means it may be a good time to refinance some
of your debt, and here are the two reasons why you should consider it:
The first is to lower your monthly payment in times of a
cash flow crunch, but this can mean you’ll pay more in interest overall.
The other reason to refinance is to pay less interest
overall. Depending on your unique circumstances, a refinance may be able to do
both. This short video discusses refinancing in more detail.
Whatever your retirement portfolio
and financial goals, times of crisis should never be taken lightly. Consider
your options before acting.
Download Robert’s ebook, 9 Mistakes to Avoid When Retiring Solo, if you’re on the path to
retirement and need guidance.
What financial actions did you take in the past week? How
did they impact your retirement portfolio? Now that you thought things through,
would you act differently? How? Please share with our community!