FAQ: Retirement Investing Through a Pandemic

 

How much money have I actually lost?

While it is certainly not fun to see the value of your retirement account drop – often drastically – during market downturns, your perceived loss is only “on paper” until you sell your investments. Only when you sell your investments does your loss become truly realized. It may be psychologically helpful to remind yourself that the number of shares (or units) you have in your mutual fund investments has not decreased as a result of the market decline.

 

Should I get completely OUT of the stock market for now, and then get back IN again once the market has gone up and the volatility has stabilized?

Human nature makes us want to get out of bad situations and into good ones. However, if we followed those same instincts as investors, we would constantly be selling our stock investments at lower prices and buying them back at higher prices. This is exactly the opposite of what a prudent investor should do. Remember, it is important that we don’t let our short-term emotions dictate our long-term investment strategy. Remind yourself that you are not investing for today, but for the future.

 

Should I invest my current retirement savings more aggressively since the market is down?

While using some of your current more conservative investments to buy more aggressive investment options may seem like a good idea, timing the market is extremely difficult. If this is something you are considering doing, make sure that you have the patience, discipline and investing time horizon necessary to reap the potential benefits of this decision. Rather than taking a speculative approach, instead consider reassessing your risk tolerance periodically to determine if your account is allocated appropriately based on your age and the level of risk you are comfortable taking. Also, be mindful that ‘rebalancing’ plays an important role in your long-term investment strategy. Rebalancing to your initial target portfolio mix means selling off winners in order to buy underperformers so that the risk level of your account remains at the initial level that you elected. It is one way to “buy low and sell high” while self-imposing a level of discipline within your portfolio. If your retirement plan offers easy, professionally-managed investment options, rebalancing is typically included within those funds or portfolios. However, if you created your own portfolio, don’t forget the importance of periodic rebalancing, and find out if your Plan has an automatic rebalancing feature available.

 

I will be retiring soon. What should I do if I no longer consider my investment strategy to be long-term?

Although your employment future may be short-term, your investment future should still be considered long-term. As investors, we don’t invest “to retirement” but rather “through retirement”. Ideally, you have reduced your risk periodically as you’ve aged and aren’t too heavily invested in stocks by this time. However, if you are more aggressive than you think you should be, consider taking small steps down the risk ladder rather than one giant leap, especially during times of high stock market volatility.

 

What are the safest investment options available under my Plan?

The typical retirement plan fund menu includes a combination of stock mutual funds and fixed income mutual funds (i.e. bond funds and/or money market funds). While bond funds are not risk-free – they are subject to credit risk, interest rate risk, inflation risk and prepayment risk, as examples – they are generally considered to be a more conservative investment option than stocks funds. Just be mindful that the term “fixed income” does not mean risk-free.

 

My retirement plan does offer a money market fund option. Can I lose money that I have invested in the money market fund?

Although money market funds seek to preserve the value of your investment at $1.00 per share by investing only in high-quality, short-term debt instruments, cash, and cash equivalents, they cannot guarantee they will do so. Regardless, a money market fund is typically the safest, closest to cash, investment option available through your retirement plan.

 

Should I stop making contributions into my retirement account until the stock market recovers?

Definitely not. This is another one of those questions prompted by the human nature element. However, by continuing to contribute during market downturns, you will be taking advantage of stock market “sales” by buying additional stock investments at much lower prices. Continuing to save will also soften the impact of market losses. Also, if your employer matches your contributions, you should always strive to contribute at least enough to maximize that benefit. Remember that the main factor in how much you will have in your retirement account by the time you retire is the amount you contribute.

 

How long will this market volatility last?

The unfortunate reality is that nobody knows. It could last for several months or it could take several years for the market to fully recover and get back to where it once was. Being a successful long-term investor requires both patience and discipline during these trying times.

 

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This newsletter is provided for informational and educational purposes only and is intended to be used as a guide for planning. It should not be construed as investment, tax, financial or other advice. Data and other information provided by third parties are believed to be obtained from reliable sources, but we do not guarantee the accuracy of such information. Investing in securities involves the potential for gains and the risk of loss and past performance may not be indicative of future results.