written by Cassie Davidson, Director of Client Experience, on behalf of Brian Dudley.
Watching your retirement accounts decline rapidly may do the opposite to your heartbeat. Don’t panic! It’s hard, we know. We get the feeling because we have money invested, too. However, as our founder Brian has always said, “panic is not an investment strategy”. Here are four things to look at when reviewing your 401(k).
Maintain a long term perspective. If you are 20+ years out from retirement, you can breathe. You have decades to make up for any paper losses you incur during this time and you will experience many more ups and downs in the market along the way. Fortunately, for you, time is on your side.
Check your contributions. Market drops are a great opportunity for investing as many investment vehicles are considered “discounted” during this time. If you are not already doing so, make sure you are contributing at least the minimum to get a match from your company (if one is offered). Take advantage of low prices and essentially free money.
Beware of consequences of cashing out. I’m sure you’ve realized the importance of an emergency fund, but we understand that sometimes that just isn’t enough. You want to be careful when taking any distributions from a retirement account before the age of 59 ½. Typically, there is a 10% penalty for doing so before hitting the age requirement, but the COVID-19 created CARES Act has allowed that 10% penalty to be waived if the funds are paid back within three years. You must also have to have been directly impacted by coronavirus to qualify for the penalty waiver. Remember, you still owe taxes on any distributions that you take and do not pay back. Be careful. On another note, cashing out locks in your losses and you miss out on the opportunity to regain any of the money back. You don’t technically lose money until you sell your investments.
Review your portfolio allocation. If you are far out from retirement, but the looking at your account still gives you a pit in your stomach, review your asset allocation with your financial advisor. If you are young(ish), equities are normally great long-term investments. If you can’t stomach the market, don’t just give up and not contribute to investment accounts. Find investments that offer upside with lower risk than stocks. Keep in mind that market declines are great opportunities for investors so be sure to keep at your contributions to both retirement, non-retirement, and other investment accounts. As you get older and closer to retirement, you may want to adjust your allocation to be more conservative, depending on your goals.
Remember, we are here to help! Contact me to discuss ways that our team can help you with your retirement plans.