My two children each own one share of stock. As their prices fell, the teen winced. The tween rolled her eyes and announced, “You should never buy high and sell low."
Many of us have been on an emotional seesaw as we react to the COVID-19 pandemic’s financial fallout. But as long as you are investing for the long haul and have a solid plan in place, what happens over the course of a few weeks or months shouldn’t matter much.
Still, many have struggled with decisions about their own bruised retirement investments. Whether you just started saving enough to get your employer match or you’ve amassed a few decades of 401(k) contributions, it’s tough to see your statements turn red with minus signs when they’ve typically glimmered with plus signs.
So we’ve flooded call centers and financial advisors, asking whether it’s time to get out of stocks. Searches on “panic selling” have spiked on Google. Our thinking almost always goes like this: “I’ve lost so much already. I just can’t afford to lose any more.” Or, “Have we hit bottom yet?” And finally, “Is this time different?
We all know that we have no way to know for sure, and that’s unsettling at a time when our health is so vulnerable, too. But here’s the good news: When it comes to investing, inaction equals winning. In spite of our understandable worries, many people are resisting the urge to sell impulsively. We’re sitting tight instead. Of more than 1,000 Americans surveyed for BankRate.com in March, two-thirds said that they intentionally left their investments in stocks and stock-invested mutual funds untouched, even as the Dow Jones Industrial Average fell more than 30 percent.
And if that’s all you can do at the moment, that’s okay. But you don’t have to avoid your investments forever. It’s not that making any change in the way you invest for retirement is necessarily wrong. What’s important is to approach any adjustments thoughtfully. When you feel ready, you may want to consider one or more of these three steps:
- Rebalancing your investments
Many people saving for retirement are trying to figure out if, or how, they should rebalance their portfolio.
All we mean by “rebalancing” is shifting the portion of your investments in various categories back to the original mix that you intended. The technical term for this is “asset allocation.” The goal is to get your investments back in line with your risk comfort level.
So, for example, if you’ve been investing 60 percent of your retirement account in stocks and 40 percent in bonds, you may discover that the market swings have left you with a 50-50 mix instead. To get back to your goal, you’d sell off some bonds and buy more stocks to get back to 60-40. It might feel like bargain shopping: You generally wind up buying more of the assets that have fallen in value, as if you’re buying something “on sale.”
For many of us, rebalancing makes sense in theory but feels complicated to do—especially on top of our day jobs. Fortunately, there are tools designed to help, such as:
- Target-date funds, available in most retirement plans, automatically diversify and rebalance investments over time with your retirement year as the goal. Some even include annuities that can provide guaranteed income in retirement.
- Managed accounts, which do the investing for you and typically charge a fee to keep your portfolio mix balanced to match up with the level of risk you want to take.
- Making a plan
This is simple: Do you have a financial plan? If so, is it up to date?
If the answer to either of those questions is “no,” it may be time to call in a professional. You can do this by phone, email or video, so there’s no need to wait until social distancing is over. Some workplace retirement plans offer financial advice, so you may want to start there first.
One of the main things an advisor will want to know is how much risk you feel comfortable taking with your retirement savings. They typically gauge it by asking you to take a risk-tolerance questionnaire. Even if you don’t seek out help right now, or if you’ve taken a quiz like this in the past, you might want to do it again. It takes five minutes, and you might be surprised how much your outlook can change over time.
If you find, as I did, that your risk tolerance has dropped a lot in the past several years, you may want to consider making changes in your asset allocation going forward, including the addition of investments that guarantee principal or growth, such as some fixed annuities, certificates of deposit or money-market accounts. Fixed annuities also can provide guaranteed income in retirement.
Your workplace retirement plan may offer one, or all, of those options. And you may want to consider a common rule of thumb: Put a portion equal to half your age into this type of investment. So, for example, if you’re 30 years old, you might consider putting 15 percent of your workplace plan into an annuity. And if you’re 50, you could think about 25 percent.
- Fine-tuning the way forward
Even if you already have a financial plan that has served you well, it might be time to consider some changes going forward—especially if your income has taken a hit, or you are anxious about the financial future. Many households are facing some degree of economic uncertainty: Job losses, medical bills, and the possibility of higher health-insurance premiums next year. That may mean changes, at least temporarily, in the amount you can save or when you plan to retire.
Rather than selling off investments and locking in losses, you may want to work with an advisor. Among other constructive steps to consider are:
- Revising your financial plan
- Creating a budget for now and the future
- Weighing how CARES Act relief might help
- The pros and cons of tapping your retirement assets early
- Whether it’s time to tap any emergency funds
- Adjusting your investment mix (or asset allocation) going forward. Revisiting your long-term goals
Taking steps like these can also help with the sleep-at-night factor so many people are struggling with right now.
Back at my house, the teen’s 16 th birthday is coming up. I’m shopping around (online, of course) for the right personal-finance book for him. And maybe for one more share of stock—if we feel like we can buy it low.