April 13, 2020 | Reading Time: 2.0 min
COVID-19 Was Your Retirement Plan Test
Countless Americans are worried about the impact that Covid-19 will have on the health of their families and friends, and indeed their own well-being. However, there is another concern that could impact you.
In preparing for retirement, investors should prepare for all sorts of investment environments, and that includes downturns like Covid-19. While it may seem out of the ordinary, remember that it has been less than 15 years since the last financial downturn, and while the growth seen over the past ten years has been substantial, it is now clear that it is sandwiched between two bear periods.
Therefore, it is all the more crucial that your retirement plan be prepared for any such eventuality. As painful as one as it has been, Covid-19 is just a test for your finances. Here’s how to check to see if you’re ready.
Diversification is Key
Although many securities are doing poorly right now, there are others that are doing well. Many mail-order retailers, healthcare stocks, and PPE manufacturers are seeing high earnings. Even traditional publishers are seeing an increased demand for books. Plenty of companies stand ready to make substantial profits as a result, and given that it is on a sector by sector basis, diversified portfolios are likely seeing substantial stability.
It is not just about stocks, however. Fixed income, alternative investments, currencies, and commodities have all also seen considerable volatility over the past few weeks, but through that volatility there has been a number of opportunities to gain considerably. Not all of these will be immediate, of course; some may pay considerably in the future. At any rate, diversification is a step that helps you accomplish all of this.
Appetite for Risk
More than just a need for diversification, Covid-19 has also informed a need for knowing what one’s appetite for risk is, no matter what the market conditions may be. Doing this must be done not only with an eye to the future, but with an eye to the individual appetites of the investor in question.
After all, different investors will have different appetites. Some investors may have no problem riding out a storm like Covid-19, confident that the market will prevail. Others, especially those who rely on more actively managed portfolios, may wish to fall back to a safe harbor during such a situation.
The goals of each investor, as well as his/her time left in the market, each play a large role here. Someone who is close to her financial goals may not want to risk eroding what she has gained over the years. Likewise, an investor who is younger and has the benefits of time and compound interest may well wish to search for greater rewards.
At any rate, solid communication and a good plan will help make sure that you are prepared to meet the market on your terms. Rather than treating Covid-19 as a one-off occurrence, by addressing it as a potential market fluctuation that could happen again, you will be better suited to handle it in the future, knowing what could well come as a result, and preserving your net worth regardless of what goes on around you.
Investment advisory services offered through Foundations Investment Advisors, a registered investment adviser ("Foundations"). The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Jay Hagy providing such comments, and should not be regarded as a description of advisory services provided by Foundations or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD # 175083.