Corporate Retirement Plan Advisors
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1. Review Your Emergency Fund
Remember that emergency fund financial planners always tell
you to have? Make sure it is fully
funded with 3-6 months’ worth of living expenses. If you need to temporally stop 401(k)
contributions to boost that cash reserve, do it now. Review your emergency fund.
2. Stay The Course
In times of stock market turmoil, we all want to take action
but the best action for all of us to take right now is to do nothing and simply
stay the course. In times of financial crisis I like to listen to people like
Jack Bogle, the legendary founder of Vanguard, when he said: “Never be out of
the market and think you can get back in because your emotions will defeat you
Trying to time the market never works. Fidelity investments
recently did a study of the stock market from 1980 – 2019 and found that
someone who missed just the 5 best days of trading made 35% less over that time
period than the person who stayed the course.
Miss just 10 of the best days and your return drops over 50% compared to
the person who rode it out. Stay the
3. Ignore the Naysayers
Beware: Your neighbor
will tell you that she sold before all this stock market turmoil happened
because she had a bad feeling about things. Your brother-in-law will remind you
that he timed the market right during the last crisis in 2008 and how much
money he made buying back in at the perfect time. Every day you hold on while
markets plunge, they will look right, and in the short-term they might be. So be
polite but don’t be fooled. Here is the
truth: If you stayed invested while they
timed the market your returns would have beat them over the long run. No one
compares account statements. Instead we compare our false recollections of
history. Ignore the naysayers.
4. Keep Investing every month
Instead of taking investment advice from your neighbor or
relatives, listen to another famous investor, Warren Buffet, on what you should
be doing right now. Buffet recently said
on CNBC that “It [the virus] is scary stuff but I don’t think it should affect
what you do with stocks”.
In fact, buying more shares of your mutual funds when they
are down is like going to the grocery store and buying things on sale. You get more stuff/shares for your money. Right now, stocks are on sale so continue
buying in your 401(k) just like you did before this crisis hit. When the market comes roaring back, you will
be rewarded. Keep investing every
5. Remember what you own
Many of you are invested in target date retirement funds in
your 401(k). These investments are based
on your age and expected retirement date so they have a reasonable investment
mix in both good and bad times. Hold on
to them. Do not let your emotions in the
heat of the moment dictate your decsions.
I also like to remind people that these mutual funds are
more than just names on their monthly statement. They own real companies making real products.
Many target date funds own Microsoft whose program I am using to type
this letter. Apple whose phone is
in my pocket. Amazon who delivers
to my doorstep while I work from home. Take
comfort in this knowledge. Remember
what you own.
We will get through this together. Long-term patience and discipline will be rewarded so keep the faith. This too will pass.