Corona Conscious

Perhaps like many of you, I spent the last week watching a series of announcements regarding various school and business closings associated with the coronavirus—but I was also keeping an eye on my retirement savings.

I know—this is exactly the thing that most advisors counsel against, not only because it might be depressing (though there’s been plenty of inspiring moments), but because human beings are often inclined to react emotionally, not rationally in markets like these. And, seriously, have there ever  been markets like these?

Now many, perhaps most, participants and plan sponsors will embrace the counsel to not only avoid taking action, but to avoid paying any attention to the short-term volatility of what is, by its very nature, a long-term investment.

That said, some will undoubtedly want to do  something. And for those, I offer the following alternatives.

If you’re in a target-date fund or managed account:

Leave it alone. People have been told for years to not “leave your eggs in one basket,” to make sure that your retirement savings is diversified between investments in stocks, bond, and cash (or mutual funds that invest in those). But that target-date fund (or managed account) is already diversified, and even if it looks like a single investment, it’s not.

Target-date funds[i] are a pre-mixed investment solution—and most are designed in such a way that they assume that you are investing all of your retirement savings in that one investment. If you mix and match that with other funds on your retirement savings menu—or split your savings between two (or more) target-date funds—you will probably wind up with a mess. Just pick one. It’s the basket you should  put all your eggs into.

If you’re not  invested in a target-date fund or managed account:

Check your account balance. While a lot of experts will tell you to avoid looking at your account right after a big drop in the markets, if you’re making individual fund choices, it’s probably worth checking out how your account is currently invested. If you haven’t checked in a while, you might find that it’s gotten “out of balance” from your original investment selections.

Indeed, that’s why—several days into the sharp declines following the recent record highs (yes, it’s hard to believe that a month ago we were sitting at all-time record highs), I logged onto my account(s). I wanted a rough assessment of just how much my asset allocations had been shifted—and took advantage of a couple of market dips to move some money into equities (although sadly, some of the dips kept dipping… but retirement is (still) a ways off…).

Get started on rebalancing. If you’re making your own investment decisions, while this may not be a great time to rebalance your entire account, you can start by changing the investment elections of new contributions, rather than transferring existing balances. It will take longer to realign the entire account, but at least you aren’t realizing those as-yet-unrealized losses.

Look into automated rebalancing. If you still make and maintain individual investment fund choices in your retirement account, it can be hard to pick the best time to make a change. (Hint: a period of extreme market volatility is almost never the best time.) However, the vast majority of providers now have in place mechanisms that will, at some preset frequency (e.g., monthly, quarterly, or annual), automatically rebalance those accounts in accordance with your established investment elections. It’s a good way to keep things in balance without having to worry (or remember) about it.

Consider investing in a target-date fund or managed account. When you sit down to make choices with your retirement plan investments, you are generally presented with a list of fund choices—and given an opportunity to choose those that will help your retirement savings grow. However, most of us are not investment experts—and even if you have the time, and get the help to make a good decision, you may well be too busy to keep an eye on those choices on a regular basis.

Regardless of whether you’re in a target-date fund or managed account or not:

Increase your current deferral rate. This is a biggie. When you think about just how much cheaper those retirement plan investments are compared with a few weeks ago, it’s hard to pass up that kind of bargain. More so if you aren’t yet saving at the maximum level of the match.

Think about getting some professional investment help. Odds are, even if you like keeping up with the markets, it’s not your day job. A good, trusted advisor is always a great option, but you might find it useful to look into a solution that is professionally managed all the time—such as a balanced fund, target-date fund or managed account option.

Remember that “stay the course” is only a viable strategy if you were on the right track to begin with.

- Nevin E. Adams, JD

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[i]Although target-date funds and managed accounts are not identical, both are “pre-mixed” investments that are diversified between stocks, bonds, and cash based on stated criteria, generally either a target retirement date, an established individual tolerance for investment risk, or some combination of those factors. For these purposes, references to target-date funds should also be considered to include managed accounts.

'Nothing' Doing

If you’ve been asked in the past two weeks what to do about the market (and who hasn’t), I’m sure your response has been something along the lines of . . . “Nothing.”

There are, of course, more eloquent ways to express that sentiment. And, let’s face it, when it seems that everyone is asking that question—it’s generally well past the time when it is prudent to try and do—well, anything.

Still, it seems that throughout my professional career, every time the market plunges (even when it stays down for an extended period), the pundits all seem to say the same thing; “the fundamentals are sound,” “we’re going through a period of short-term volatility,” or “we were due for a correction” (sometimes all of the above). Granted, this period seems unusual—there is a non-financial cause (the coronavirus outbreak) that is projected/anticipated to have a financial impact of unknown size and duration. That it has emerged at the outset of what is likely to be one of the more contentious election cycles in memory will, of course, only fan the flames of uncertainty—which is, at its core, the heart of all market volatility.

As for the admonitions to “stand pat,” while we’d all like to believe that we don’t need to do anything (and it’s generally too late anyway), there’s something to be said for a timely, comforting voice of reassurance. Better yet if that reassurance comes from someone knowledgeable in such matters—and better still when that reassurance comes from someone familiar with the particulars of our investment portfolio and financial needs/aspirations.

Plan sponsor fiduciaries are generally appreciative of those messages. They bear responsibility for the prudence of such investments, after all—and the reassurances of experts that prudence has been manifested in their decisions (or their non-decisions) is understandably welcome. Most are only too happy to pass along those reassurances to the retirement plan participants on whose behalf their decisions (or non-decisions) have been made.

Indeed, it’s a rare 401(k) enrollment meeting or education pamphlet that doesn’t remind us all that 401(k)s are long-term investments, that they continue to benefit from the on-going benefits of dollar-cost averaging, and perhaps increasingly that their investment in a diversified asset allocation “solution” like a target-date fund or managed account means that they needn’t concern themselves with those kind of interim swings.

Tough times can engender resentment and, in extreme cases, litigation, after all.

But they can also foster an appreciation for expert counsel, and that current reassurance that the inevitable “storm” has been anticipated—and that tough times can bring with them, opportunity.

- Nevin E. Adams, JD