Sponsored post by Principal Preservation Services and Principal Wealth Services
After the stock market hit an all-time high on Feb. 18 this year, we’ve seen a drop in the market by around 10%. Many economists are blaming this market drop on the president and the “trade wars” between the U.S. and other countries.
First of all, the sky isn’t falling, and volatility should be synonymous with the market. We
can’t always expect a strong, bull market. Americans have had it good for the most part. We had the longest bull run in history from March 2009 to February 2020. The S&P is up over 143% just in the last 5 years.
There are no guarantees in the market and if you can’t handle the risk, then you need to make some adjustments. Looking back at the history of the markets, they always come back after a loss—and then some.
The problem for many is: where are you in relation to retirement? If you are panicking about a 5% loss for the year or a 10% loss from the all-time high, you most likely shouldn’t have that risk in your portfolio. Just about two-and-a-half years ago, the markets were down 25%. We’re far off from those numbers. If you aren’t retiring in the next year or two, you shouldn’t be panicking.
Evaluating risk
Bonds and bond funds have taken deeper losses than the stock market the past four years. Many people think that or are told that they are the “safe” investments to turn to when the market turns south. Unfortunately, if you have held onto these bonds or bond funds the past four years, you most likely have experienced double-digit losses and it will take several years for these bonds to recover. These bond and bond fund values are interest rate sensitive and as of now, there is no date planned for the Federal Reserve to cut interest rates.
For those nearing retirement, I always recommend having an updated risk assessment completed. This helps investors to understand their tolerance for risk and how they are investing to see how the two compare.
If there is a disparity between your risk and your risk tolerance, then changes should be made. There are safe investments out there that you can keep up and beat inflation while not losing anything in a bad year in the market. However, you don’t find those types of investments in employer-sponsored plans, banks, and even most advisors don’t offer them. These investments are designed to lower the risk for those coming close to or in retirement.
Most people haven’t heard of these because we don’t have retirement communities in Minnesota like we do in other southern states where people are more educated on these fixed index annuities (FIAs). What it comes down to is that we shouldn’t be always reacting to the market. We need to be proactive by planning for your retirement.
Planning is vital to ensure that when you plan to retire, you get to stay retired. TransAmerica came out with an article a couple of years ago stating that only 13% of
those already retired did a retirement plan. That’s scary that most people haven’t planned their retirement. Essentially, they are winging it!
By getting a plan together, you will have the knowledge and peace of mind knowing that the plan works when we have good markets, and the plan works when the markets are not good. Most advisors are just selling investments without putting together a plan consisting of Social Security timing and strategies, taxation, risk reduction, distributions, RMDs, and even long-term care. You shouldn’t be investing the same way today as you were 15 to 20 years ago. The older we get and closer to retirement, the harder it is to recover from a bad market.
Mike Kojonen
Mike Kojonen is an Investment Advisor Representative and the founder and owner of Principal Wealth Services and Principal Preservation Services. He can be reached at: zvxr@cevapvcnycerfreingvbafreivprf.pbz
