The wild market swings continue and fear is still strong as we deal with the Coronavirus pandemic. I participated in a conference call recently where experts weighed in on the current situation, both from a medical perspective and an economic standpoint. I wanted to share some of the bottom-line statements to help us cut through much of the media hype and focus on the data points that are important.
With this information, it seems wise to hold the course. Our advice really hasn’t changed at all with this new data; but rather, it was reinforced. Below is the same advice I provided in our last post. Hang in there, StrongTower family!
What is the WISE thing to do in times like these?
To answer this question, we must consider the phase of life you are in right now.
If you are still saving towards your goals, you are in the “accumulation phase”. So, if you are still saving towards college, retirement, or other goals, this one is for you. Market declines like this can sometimes work in your favor. So, go ahead and say, “Woohoo! The markets are down!” OK, don’t do that or you might get slapped by someone in the “distribution phase”. The reality is that stocks may be selling below fair value right now, which provides buying opportunities. So, keep making those regular deposits into your accounts and buy stocks while they’re cheap. We don’t know where the bottom will be on this particular market cycle, but we know that stocks are priced better today than they were 3, 6, or even 12 months ago.
If you are already at the point where you are taking money from your accounts, then you are in the “distribution phase”. So, if you’re already getting those monthly withdrawals from your account for retirement income, this one is for you. Market declines are harder to handle when you’re in this phase because monthly income is dependent on your account growth. There are some very important things to keep in mind:
- When we project your retirement needs, we assume that market drops like this will happen. They are built into our calculations.
- When you are taking money from your accounts, you are typically invested more conservatively than you were in the past. This is vitally important. For example, if you have a “moderate” blend of investments, you have roughly a 60/40 split between stocks and bonds respectively. Not only does this help protect you when the markets drop like this, but we can take your monthly checks from your bonds, which allows more time for your stocks to rebound.
- We like to keep about six months of your monthly withdrawals in cash. This also helps us to avoid selling stocks while they are down.
- Some clients have enough margin built into their finances that they can reduce their monthly withdrawals during a market drop. This isn’t usually necessary, but it can be wise to “tighten the belt” through a rough patch.
Thanks Todd, I really haven’t worried, mostly concentrating on staying healthy. I trust you and your Godly wisdom.