Virus mitigation efforts that closed businesses worldwide have left investors scrambling to keep their retirement funds intact.
But, like all problems we face during this time, making financial decisions with a calm head will likely lead to better outcomes.
“It was another rough week in the markets as investors grappled with two big unknowns: what is the shape of the coronavirus curve we are trying to flatten and how long is the economic pullback we have now entered,” explained financial advisor William W. Chapman of Ameriprise Financial Services Inc. in Bradford. “We may not know the answer to the second without knowing the answer to the first.
“In short, the markets may not make a definitive bottom until the shape of the virus curve begins to become clearer,” he said.
After many encounters with people who are concerned about their financial futures, Chapman shared some insight to keep investors calm.
To investors in general, he advised, “Don’t let uncertainty drive your financial decisions. Review your goals and personal financial plan with your advisor to make sure you are still on track. Market direction can be erratic and unpredictable over periods like we are currently experiencing, but returns have generally been positive over the long run.”
Chapman offered tips specific to people who are closer or further from retirement, too.
For people who are far from retirement, he reminded them that, as history has indicated, there is still time to grow one’s investments.
“Keep in mind you may have several decades of saving for retirement ahead of you. Time is on your side,” he said. Downdrafts in the market can create opportunities to gather more investments at lower prices. Over the long-term, on a historical basis, asset prices have moved in an upward direction. A systematic investment strategy in which you put your money to work in the market — even when the market is moving down over the near-term — can help build wealth over time.”
Chapman also advised people who aren’t planning to retire soon to review current contributions to their investments, such as their workplace retirement plan or IRA.
“Short-term price movements in the markets can also reveal opportunities to increase growth potential,” he noted.
Chapman made recommendations for those nearing retirement — or already retired.
“Recognize that market movements could cause you to be less comfortable with risk in your portfolio,” he said. “Although we can’t predict exactly what will happen, historically the market has rebounded, even after pronounced drops in value. Market pressure can present you with opportunities to invest at favorable price levels.”
However, people approaching or in retirement should have fewer risky investments in general than those with a long work life ahead of them.
“It may make sense to adjust your portfolio with a mix of high-quality assets that can help preserve the value of your portfolio while possibly enhancing growth potential,” he continued. “This could also include keeping more of your assets in less volatile investments, which may help reduce downside risk. Lastly, ensure your asset allocation strategy helps you mitigate risks. In general, it’s better to stick with your asset allocation strategy and avoid market timing mistakes that too often lead to results that derail investment success.”
