Retiring During Covid Crisis – A Tale of 2 Investors
April 28, 2020
by Jason Hutchins, President, Fiduciary, Guardian Wells Financial
The bull market’s over and we are now in bear country after stocks dropped over 20% below February’s record high.1
The last time markets fell like this was during the financial crisis.
It is officially gut check time.
So, I’d like to tell you a story about two investors who lived through a bear market and how their decisions during the correction affected their lives ever after.
(Don’t like stories? Scroll down to the end for my specific advice.)
One investor, we’ll call her Pandora, was looking forward to her retirement when markets fell. She watched as her 401(k) lost 10%, 15%, and even more in a few short weeks.
After getting used to years of gains, she felt as though all her hopes for a comfortable future were evaporating right in front of her. She saw footage of trading floors in full-on panic and listened to the “experts” talk about the end of the world as she knew it.
Watching her portfolio fall, losing the value it had gained in the market’s record-breaking run was too much for her.
So, she logged into her account and entered the sell order, cashing out to avoid losing any more.
“I’ll reinvest when the panic’s over,” she told herself. “Selling is the best way to protect myself.”
So she waited and waited, and by the time she felt safe enough to get off the sidelines and back into the market, the bottom was long past, and she’d missed some of the best market days in a decade.
Pandora became one of the cautionary tales of investors who had to defer their retirement for years because they gave in to fear and made emotional decisions.
This is what happens all too often when we focus on accumulation rather than the lifeblood of retirement – INCOME.
Athena was already retired when the bear market hit. Even though the headlines made her anxious, and she felt like the sky was falling, she stuck to the strategy she and her adviser created.
A retirement plan that was built to support lifetime income.
Consistent, predictable, replenishable INCOME.
Steady income while markets are up.
Steady income while markets are down.
“We planned for this,” she’d remind herself when the worries would hit. “Selling is the worst thing I can do right now.”
She remembered that emotional decisions are usually bad ones and that trying to time the market by jumping in and out doesn’t end well.
So, she held on while her portfolio value seesawed and dropped 10%, 15%, and even more….and then finally started rising again months later once markets hit bottom and investor sentiment became positive again.
Athena’s portfolio grew during the recovery, helped along by the tactical investments her adviser recommended.
She didn’t let markets cramp her style. She focused on living well and enjoying her retirement.
The moral to this story?
Athena trusted the process and relied on her income plan to do what it was born to do. She didn’t let the market panic override her good sense.
Pandora couldn’t help but panic. With her lifetime income left uncertain, the market swings were too much for her to handle.
Don’t be a Pandora. Be an Athena.
So, on to some specific advice.
The World Health Organization officially declared COVID-19 a pandemic, and the “fear contagion” is spreading faster than the virus itself.2 Between the fear, containment efforts, and knock-on effects on consumer demand and business spending, the economic impact of the coronavirus may be far-reaching.
Could the outbreak trigger a recession? It’s very possible.
We don’t know what the next weeks and months will bring. But we do know that the fundamentals don’t change.
Reaping the rewards of long-term investing means taking the good days along with the bad.
Market bottoms don’t come with a signpost. There’s no one waving a flag saying, “the worst is over, come on back!”
The end of a bear market looks an awful lot like the middle, and investors who miss out on the ride back up tend to lose spectacularly. That’s because the best days and worst market days tend to cluster. Sit the bear market out, and you’re likely to miss out on the whole play.
We don’t know how long this bear market will last. But we do know a solid retirement plan has what it takes to outlast it. That’s because it’s built for life.
My team and I are monitoring markets and making tactical adjustments as conditions dictate for the clients we serve.
In the meantime, I’d like you to remember just three things:
- Bear markets are part of the stock investing landscape and we have to live through them to see the next bull market.
- Income is the lifeblood of retirement.
- Consider taking action now. Call me. What could 15 minutes hurt?
If you need to discuss your investment strategy, please reach out by phone to (317) 660-0929 or schedule a time by accessing my calendar here. I’m here for you and happy to talk.
Guardian Wells Financial
located in Carmel City Center
722 S. Rangeline Road
P.S. Please forward this info to anyone you know who might be worrying about markets. You’ll be doing them a big favor. Many people make bad decisions in times like these because they lose their cool.
P.P.S. These are scary times for children and young people who may be frightened by school closures and panic buying at the grocery store. I like Mr. Rogers’ way of putting bad events into perspective: “When I was a boy and I would see scary things in the news, my mother would say to me, ‘Look for the helpers. You will always find people who are helping.’” Let’s take a moment to be grateful for all the helpers on the front lines of this.
Risk Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.
This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Investment advisory services offered by duly registered individuals through ChangePath, LLC a Registered Investment Adviser. ChangePath, LLC and Guardian Wells Financial are unaffiliated entities.