Don’t worry, no need to stop and check your stock, real estate and cryptocurrency investments to see what is going on. Rest assured; all is well. The Federal Reserve is still supporting financial markets by providing enough liquidity to fill up the Pacific Ocean, government officials are fine-tuning another stimulus package measured in the trillions of dollars, and corporate profits look like a Space X launch headed to outer space.
But many investors I speak with who are retired, or near retirement, are worried about a possible crash. One retiree went so far as to liquidate all of his stocks a couple of months ago and invest everything in gold and silver. As the market just keeps marching higher, so have his worries.
Unfortunately, an investment decision like this can harm a person’s emotional and financial health. Because of his decision, he was likely to begin rooting for bad news – even chaos in the markets. He said he just wanted to be safe and, of course, would get back in the market later. He simply couldn’t eliminate the emotions he was feeling and focus on the diversified plan we had built designed to serve him well when, not if, the market turns south.
One lesson the financial markets have taught us is that the only guarantee is change. Understanding your investments and how they will perform during a downturn is the key to weathering any storm. Much like the COVID-19 pandemic sparked a downturn in early 2020, another downturn will occur at some point. Here is how to be prepared and the actions that can be taken now.
Wealth Accumulators – Embrace it
For individuals who are many years from retirement and still accumulating wealth, the answer is simple: Embrace a possible bear market by saving aggressively now. Maintaining a consistent investment strategy though periods of steep market declines has historically been the quickest way to recoup losses and enhance long-term investment returns.
For example, it would have taken an accumulator with a $100,000 portfolio leading up to the 2000 or 2008 stock market crashes nearly seven and five years, respectively, to recoup the losses from those devastating events. However, had they continued to save $20,000 each year the time period drops closer to five and two years, respectively.
Although it can be uncomfortable to watch your net worth decline during a downturn, recognizing that there is no need to withdraw any portion of your investment portfolio for years should allow you to focus on the better investment opportunity that has surfaced.
Stock prices will be at a certain level when you reach retirement. Nothing you can do today will change that. However, your rate of return from now until …….