Coronavirus and your retirement plan, should you do something?
Most of you knew this would happen again sooner or later, the time when the stock market experiences a sharp decline. The inevitable big down day (which could perhaps turn into down weeks or months) happened during the past few days when both the Dow, NASDAQ, and S&P markets closed significantly lower. Hopes for a quick rebound have diminished as all three have continued to decline. Typically I expect a drop like this about once per year.
What is causing the drop? News reports of the deadly coronavirus spreading across the globe, with confirmed cases in both Italy and the Middle East, have created fear and elevated concerns of investors. With a reported death toll of more than 2,500 casualties, the virus is taking on the global economy and causing declines in the stock market indexes around the world.
What Coronavirus Means for Your Finances
So, what does this mean for you? Should you sell all your holdings? Should you buy those funny face masks? What effect will this have on your future retirement? Will you still be able to take that vacation you’ve already planned and paid for?
Hopefully, you have not fallen victim to the hysteria and already made some irrational financial moves. Each crisis seems like the end of the world. You may think this time is different, and perhaps it is. Most likely, it is not. Whatever comes of the coronavirus, the world will go on, and the stock will come back to reach new highs in the future.
To put this in perspective, have you gone out and gotten a flu shot this year? For most of us, it is free with whatever health insurance plan you may have. Some retailers will even give you money to get this shot (my grocery store gives 10% any purchase with a flu-shot). Did you know that over 80,000 people die from the Flu in 2018, in the USA alone?
When making financial decisions, always refer back to your time frames and financial goals. Money in your retirement accounts likely won’t be touched for years. Even when you begin turning your retirement account into a retirement income, many of you will be needing that money to provide your retirement income for 20, 30 or even 40 years. While the Coronavirus may move stock markets in the short term, it will not likely change much about your finances over the long term.
Will Coronavirus Change Your Financial Plan?
I’m nearly 30 years away from full retirement age, do I think the stock market will be higher in 30 years? That's a big, resounding YES! I also expect to live another 30 years beyond that. If I choose not to invest in the stock market, I know that I will never be able to save enough money to get to retirement, let alone create an income stream that I can’t outlive.
Spanish Flu, World War II, Korean War, Vietnam, Cuban Missile Crisis, Hong Kong Flu, Iran Hostage Crisis, AIDS Epidemic, Ebola, Swine Flu, Bird Flu, SARS, 9/11, Coronavirus. Each caused the market to dip or pause, but life went on, and the stock market continued its historical upward trend. I’m sure this list could be a lot longer, but you get the point.
The best general guidance I can give at the moment is to stick with your financial plan. If you don’t have one, get one. Set up an automatic contribution to your 401(k) and other investment accounts. Set it and forget it. That way you are buying over time whether the stock market news is good or bad. The results will likely be less stressful for you and better returns over time than if you had constantly messed with your portfolio. Studies have shown that the more you look at your investments, the more likely you are to go in and make irrational money moves that are detrimental to your overall financial security.
What Actions Should You Take?
Talk to your financial advisor. If they are freaking out and tell you to sell everything, it may be time to find a better financial planner. Avoid letting fear take over; you don’t need to be sold some high-cost annuity with a horrible surrender charge just because the market is going through a correction.
For those of you who want to hear a positive spin on this, the stock of companies you love is now on sale. The stock markets around the world may have dropped around 10% or so, but I don’t believe that the companies they represent are worth 10% less than they were a week ago. The drop in the market appears to be mostly driven by panic, and the true value of your portfolio will reassert itself at some point in time. The bad news is that we don’t know how long it will take for this panic to pass. We also don’t know how far down the values of the markets may go before the panic passes.
Don’t forget. We are ten years into an amazing bull market. You are probably sitting on account balances, which you would not have if you had not invested in the stock market.