The First Rule of Managing Your Retirement Fund in a Pandemic? Don’t Panic.
You don’t need me to tell you that these are uncertain and unprecedented times; I’m sure you feel it yourself everyday, as you talk to friends and family—virtually or from a distance, of course; watch the news and social media; and yes, check your retirement accounts. No one knows what the next few days, weeks, months, or even years may bring. Many signs point to an ongoing struggle as we face a novel foe in the form of COVID-19—at least for the time being.
The markets reflect much of our anxiety about what the future holds for our health, our safety, and our wallets. When you see the drop in value of your 401(k), caused by a COVID-19-driven market, you may feel all the symptoms of a panic attack coming on: rapid pulse, sweaty palms, an overwhelming sense of dread, and more. In times like these, many consider liquidating their investments and moving what they have into a money market account, hoping to just wait it out and hold on to what hasn’t yet been depleted. I know how common this rationale is among investors because they call me.
I’ve been an independent wealth advisor for three decades now. I’m used to talking panicked clients off a ledge in what seems like the worst of times. I did it after 9/11, and again after the Tech Bubble burst. And I’ll tell you what I tell those clients when my phone rings, their worry almost palpable: this isn’t the time to lean in to that feeling.
I know it may feel like the world is disintegrating in front of your eyes. It may seem logical to hunker down with the acorns you still have and hope and pray that spring arrives soon. That may be a fine strategy for squirrels, but it’s not good for humans who have to pay for things with money—often for twenty or thirty years after they stop working.
We can turn to an old Wall Street adage for a better approach: Buy low and sell high. Why? When you sell low, you lock in any losses that you’ve experienced—permanently. Meanwhile, long-term investors know that volatility is an inherent part of investing. Markets go down, and they go up; it’s the nature of the game. Investors make decisions with this in mind. And now, when markets are down, is not the time to sell your equity investments. What should you do instead? Give your retirement investments time to recover.
When your worries start to rack up and you feel an itch in that mouse-clicking trigger finger, consider taking a break from your regular media channels—and from checking your account retirement balances. I often tell clients that a little dispassion in a volatile market often helps their case, especially if they’re nearing retirement. Everything is temporary, and the more you can do to remind yourself of that, the better off you’ll be.
And though it may seem counterintuitive, this may actually be the perfect time to continue adding to your investments (something that happens automatically when you set up recurring payroll deductions), rather than pulling money out. Why? The drop in the market means you can get shares at a cheaper rate. In times like these, you end up getting more for your money—which could be a real boon when we return to some semblance of normalcy, sending moods and markets alike higher.
In addition, if you’re working with a competent advisor, he or she has taken steps to protect what you’ve worked so hard to acquire. Plus, while there are no guarantees in life, history has shown us time and again that economies operate cyclically. Lows are par for the course—but so are highs. In short, don’t panic. Eventually, we’ll get to the other side.
With that in mind, we can look to those acorn-hoarding squirrels for one important lesson worth noting: Oftentimes, a long, cold winter makes for an even sweeter spring.