Greg here, and with over 25 years of experience as a money coach, author, speaker, securities litigation expert witness, and financial planner, I’m dedicated to helping you retire with confidence and peace of mind. Beyond my professional credentials (CFP®, CLU®, AIF®, AAMS®), I’m also a certified fiduciary financial planner. When not advising clients, you’ll find me enjoying mountain biking, running, walking the dogs, or spending time with my family.
Now, let’s address the current situation head-on. Undoubtedly, the impact of the coronavirus is profound, affecting both lives and the economy in significant ways. My role is to guide you through these times with informed financial planning, showing you what you should be doing right now to manage your finances effectively.
It’s perfectly natural to feel anxious when you see the market fluctuating wildly. But the most crucial advice I can offer is to remain calm. Your financial plan should account for market volatility, and if it doesn’t, now is the time to make adjustments.
Epidemic/Pandemic Framework
Understanding past market responses to epidemics can offer some perspective. Historically, markets have rebounded strongly after these events:
– SARS: 20% return
– Bird Flu: 18% return
– Swine Flu: 35% return
– Ebola: 10% return
– Zika: 17% return
These statistics indicate that while the immediate future may seem bleak, markets have historically recovered and often thrived after similar crises.
DALBAR Study
It’s essential to note that the average investor typically underperforms the market index by around 3%. This is often due to emotional reactions, driven by fear and sensationalist news. The best approach is usually to stick with index funds and resist the urge to make impulsive decisions.
Seven Rock-Solid Strategies
1. Tax-Loss Harvesting
If you’ve invested in something like SPY ETF and it drops in value, you can sell at a loss, wait out the 30-day wash-sale rule, and repurchase it or a similar investment. This strategy helps offset future tax gains and some ordinary income.
2. Rebalancing
Regular rebalancing of your portfolio ensures you buy low and sell high. Rather than rebalancing once a year, more frequent adjustments could better align with market conditions.
3. Roth Conversions
Converting a traditional IRA to a Roth IRA when market prices are low allows you to pay taxes on a lower amount. This strategy can reduce required minimum distributions later and potentially lower your tax bracket.
4. Increase Your Equity Allocation
Historically, markets rebound sharply after significant declines. Increasing your equity allocation when prices are low can position you well for future gains.
5. Update Your Retirement Plan
Regularly review and adjust your retirement plan based on current market conditions. This may involve altering your stock-to-bond ratio to better align with your goals and risk tolerance.
6. Structured Notes
Structured notes can offer downside protection and potential upside. While they can be complex, they aim to provide a more secure investment in volatile markets.
7. Savers Should Invest More
If you’re actively saving, consider increasing your investment now while the market is down. This strategy leverages lower prices for potentially higher future returns.
In Summary
While these times are indeed challenging, the choices you make now can set you up for future success. You have three options: sell and lock in losses, hold your course, or implement these strategies to thrive long-term. At the very least, I recommend staying the course, but optimally, consider Roth conversions, portfolio rebalancing, and increasing your investments. These actions can position you well for the eventual market rebound.
