2020 is coming to a close and has defied all of the expectations we had this time last year. Little did any of us know, as we wrote posts about goals that businesses should have for a new year or financial resolutions that the world would change practically overnight.
If you’ve been one of the fortunate ones to keep your business going, or have your job, you hopefully haven’t had to take hardship withdrawals from your retirement savings. That said, that’s not the only thing to not do to guard your investment during these times.
Though the vaccine is now starting to be distributed, the hard times aren’t yet behind us. Recovery will most likely take time. Until then, here are three tips to keep your retirement financial plan in tip-top shape (or, as much as possible).
Fight emotionally-driven decisions
Earlier in the year, we covered the “cycle of emotions” when it comes to investing. The emotions that we experience during different points in said cycle are natural and expected. Anxiety and fear have been at the forefront this year, so to say that none of us haven’t felt them wouldn’t be the truth.
That said, recognizing the fear and acting on it are different things, and we continue to urge extreme caution when making any investing decisions fueled by anxiety, worry or fear. When our emotions get the best of us, we are urged to sell out of our portfolio. Interestingly, one of the most prominent reasons that people have underperforming portfolios has little to do with selling at the wrong time, but rather, that they didn’t buy at the right time.
And, if you’re letting your emotions get the best of you, not only might you sell at the wrong time, but you may not just avoid buying all-together, you may end up buying when you should have.
You do not want to miss the best days during the buyback comeback! Don’t forget that most of the best days generally occur within a 2 week period of the worst.
Pad your emergency fund
We can’t look at the news and not see stories about eviction risks, people who can’t pay their bills or reports of miles-long food bank line ups. Americans are turning to their 401(k)’s for emergency funds (thankfully, the CARES Act made that easier this year). According to USA Today with data from Fidelity Investments, 1.4 million people withdrew from their account, with an average withdrawal of $9,600 per transaction (from Fidelity plans).
If you’ve been fortunate enough to not have taken any withdrawals from your retirement fund or even your emergency fund, now’s the time to bulk them up if you’re able. With a larger emergency fund, you’re less likely to have to take out money from your retirement accounts. A simple way to boost your emergency fund is looking at your checking account at the end of the month - if you have extra money leftover and you didn’t “miss” it, then consider moving some or all of it over into your emergency savings account.
If your emergency fund is already where you want it to be, there’s no reason to stop there, either. Lastly, with the promise of another direct payment on the horizon for many, it would be a good time to pad your emergency fund a bit more.
COVID-19 or not, having a solid emergency fund is a good idea to cover any unexpected expense that may arise.
Talking to a financial advisor
Having a financial advisor who has been through this kind of market volatility before can help you stay on target and not let your emotions get the best of you. If you find yourself wanting to make sudden or drastic changes with little information behind those decisions, give us a call and talk to us about your concerns.
Do not hesitate - we’re here to help you through these difficult times and keep you on track to achieving the retirement you hope for.