Protect Your IRA During the COVID-19 Crisis 

Have you recently taken a peek at your retirement savings and felt a wave of dread settle over you as you witnessed the coronamarket taking its toll? Among all the craziness going on in the world right now, it’s unfortunate the economy is suffering as well. However, your retirement savings does not have to suffer along with it as well. There are multiple steps you can take to protect your savings during the covid crisis, or any crisis for that matter. If you are worried about how to protect your retirement savings during these tough times, and would like some help mapping out your best course of action, read on. 

Keep Investing 

The most important thing you can do for your retirement savings is to keep investing. Yes you heard me, keep investing! I know it’s scary to watch your savings go down due to the volatility of the market. Your initial urge may be to withdraw what you have saved up to stem your losses but this can have an inverse effect and cause you to lose principal and interest and possibly tax benefits or be charged withdrawal penalties. There are far better options to choose from than this. Rather, the best thing you can ever do for your retirement savings is to put more savings in — not out. 

So if taking money out of your account doesn’t protect your savings, what can you do? You can manage what you invest your savings in. By knowing how to invest intelligently, you can stem your losses and ideally profit — even during economic strife.

If you haven’t already, take the next step towards protecting your retirement savings. Make a good plan and stick with it. A well mapped out plan will provide guidelines on what to do during good and bad times and what to invest in as you get closer to retirement.

Diversify your portfolio 

There are three major asset classes to invest in: equities, fixed income, and cash (of course there are alternative options you can talk to your financial advisor about, like precious metals, real estate, and cryptocurrency). Historically, the major asset classes tend to have inverse returns. Meaning, it is often the case that market conditions which cause one asset class to do poorly inversely causes another to thrive. Because of the volatility of the market, and the inverse relationship of returns among the major asset classes, diversifying your portfolio is extremely beneficial. You can think of the famous quote “don’t put all your eggs in one basket.” If you spread your money around, when one sector struggles you have others to fall back on. On top of spreading your savings between asset classes, it is also beneficial to consider diversifying your savings within asset classes. 

Your retirement date and risk tolerance are important to consider. Stocks tend to be riskier investments but also have some of the best returns compared to bonds which do not carry nearly as much risk as stocks but also do not tend to have huge returns. A good retirement savings portfolio needs a balanced mix between those risky investments that will help get you to your savings goals and safer investments to fall back on in the case your risky volatile investments are not there when you need them. 

For those of you with many years ahead before retiring, don’t focus too much on the volatility of markets. Making a hefty allocation into stocks might make sense for you 

since you have lots of time to let the market do its thing without having to worry too much about the current volatility. In fact, a down market might even be beneficial to you since the purchase prices will be lower! On the other hand, if you are approaching retirement soon this might not make as much sense, since a large sum of your savings in risky investments runs the risk of you not having your savings available when you need it. In this case, you should make sure you have enough of your savings to cover living expenses for the next couple of years. Try to refrain from withdrawing your savings as this may cause the sequence of returns risk, and ultimately deflating your savings. Instead, try and allocate more of your savings into more stable mediums such as bonds or cash. This is your emergency fund, something I suggest everyone have, ESPECIALLY if you are nearing retirement. “The old rule of thumb used to be that you should subtract your age from 100 – and that’s the percentage of your portfolio that you should keep in stocks.” Of course, this is just a generalization, and you should always consider your financial situation, risk tolerance, retirement date, and talk out your goals with a financial advisor before making final decisions. 

Stay educated about thriving investments during the crisis 

A lot of light is shed on the negative aspects of life going on right now, but not all businesses are currently struggling. There are a number of businesses that are thriving during the pandemic, and alternative investments that tend to hold their value better during a crisis (such as cryptocurrency). Similar patterns can be drawn when there has been an increased consumer interest in self sustainable items like gardening and plumbing, which has greatly benefited stores such as Home Depot and Lowes. Pet supplies, virtual classrooms, virtual meeting spaces, and online ordering is pushing certain markets much higher than before.  With diversification and retirement dates in mind, it will do your retirement savings well to stay informed on which sectors, business, and other investments are thriving. I know it is not everyone’s top priority right now, but if you get the time to ask your financial advisors about good investments, or do some research every now and then about what is going on in the market, your retirement savings will thank you.

If you or someone you know is worried about what to do with their retirement plan during these troubling times, schedule an appointment with one of our experts. We’ll be happy to help you navigate these troubling waters.