With all of the market volatility people are asking themselves (and us):
- Should I sell to cash?
- Should I stop making deposits?
- Should I reallocate to safer assets?
All of these are great questions and there is no doubt we are experiencing very challenging times with the global effects of the Coronavirus.
To keep things simple, if you are younger and further away from retirement, you can withstand more volatility than someone close to retirement. If you are within five years of retirement, hopefully you were already allocated more broadly and will experience a little less volatility. Remember, that if you are invested 40% in bonds and 60% in equities, or even if you are 50% in bonds and 50% in Equities you are still going to experience a significant downturn in this market.
Here is what I tell my clients: Be patient. Don’t sell your investments to cash. Keep your allocation the same unless you were not allocated properly for your goals. Take time to check with your 401k plan adviser or your personal financial adviser if you have one. They can offer advice that is specific to your situation. Keep your deposits to your 401k steady unless you will lose salary during this downturn. If you expect to lose salary during this downturn, then you may need to make some adjustments to support your daily living expenses. Remember, any new deposits you can make during this downturn are buying shares at lower prices. Don’t focus on whether they are the best prices possible as that is near impossible to estimate.
Here are some statistics that may help you. We know nothing is guaranteed, but some history sometimes provides some perspectives.
- Despite significant intra year drops in the market, the market has been positive 30 out of the last 40 years.1
- In the market crash of 2007 – 2009, diversified portfolios representing 40% Cash & Bonds and 60% Equities, recovered almost 2 ½ years quicker than an all equity portfolio. 1
- From 1998 – 2018 inflation was recorded at 2.2% and the average investor was recorded at 1.9%.1 This is caused by the average investor trying to time the market. Getting out at the wrong time and getting back in after the market has already significantly risen (market timing).
- From January 3, 2000 – December 31, 2019:
- investors who were fully invested in an S&P 500 index received a return of 6.06%
- investors who missed the best 10 market days thereafter only received a 2.44% return
- investors who missed the best 20 market days thereafter received a 0.8% return.
1 Data source J.P. Morgan Guide to Markets Dec 31, 2019
You get the idea. The more days missed - the lower the return, with some even earning negative returns over the long term. 1
If you have questions, unique circumstances, or just want to talk during these turbulent and now isolating times, we are here any time. Give us a call.