Hi, and welcome to this episode of the Retirement Readiness podcast. Today, you’ll notice I’m sitting in our office in Bloomingdale. The last couple of times we’ve recorded this podcast, we’ve been around town and thought today would be a perfect time to to be here in our Bloomingdale office.
You’ll also notice, Katie, my co-host is not with me, I’ve kind of hijacked the camera today, and thought that I’d release, what I think, is a pretty special episode. I’m calling it a special release because I think that it’s both timely and important. And because I’m going solo, it may come back a little bit less polished than what we normally have. Hopefully you understand.
So, here is the Retirement Readiness podcast. We’re all about “How do you live your retirement with significance?” And today, I think we need to talk a little bit on the money side around:
How do you manage through what might be a prolonged downturn in the markets and when your investments might not be performing the way you want to?
So let’s start with what I’m calling “the nine things to do when you have a market downturn,” and especially when you’re at or near retirement, or even in retirement.
1. Be patient.
What happens, typically, as we talk to our clients is, as a market starts to correct, they’re okay staying the course in the beginning, they have some patience, if you will, up until about nine months to maybe a year with a market downturn. Once that starts to happen, we start to see people’s patience wear thin, and they start feeling like they have to hurry up and do something different because this is going on much longer than they thought. Stay the course and be patient is number one.
2. Don’t panic.
You should have had a plan put together for your retirement that includes market ups and downs. It includes things like, “What happens if we have a prolonged down period,” and you probably ran some projections with your advisor, made some arrangements for “What do we do in this type of a scenario?” Stay the course with that. Don’t make any rash decisions just because we’re experiencing something right now that maybe doesn’t feel so good or experiencing that downturn.
3. Re-run those projections.
I’m assuming that you’ve had the time to sit down and be thoughtful with your retirement. If you haven’t, then now’s a great time to do it. So when I say re-run your projections, what I’m talking about there is take some time to really say “Okay, based on where the market is today, where my account values are today, what my income is today, what I want my income to look like going forward, how am I? Am I still on track to be able to be retired?”
I was fortunate enough that a number of years ago, I was talking to somebody and I was going through a time where I was worried about some things. And he said, “You know, when you worry about something and don’t define it, it’s kind of like a monster. It’ll fill the entire room. It’ll be overshadowing. But once you define that monster, many times the fear and trepidation that you have is mitigated and starts to go away.”
So, let’s define the monster. Let’s define “How bad is it?” For many of our clients, what we’re finding is that even as markets decline, what they’re remembering is the height point that they were at, when the market was really good. But they’re not sure how far backwards they’ve gone, or how much that’s going to affect their likelihood of being successful throughout their retirement. So, just sit down and run some projections really look at it and see “What does that look like?” and “Are you still okay to continue doing what you’ve been doing?”
4. Reduce or eliminate any excess spending.
When I say excess spending, I don’t mean don’t go out to eat. I don’t mean, don’t take the grandkids out for ice cream. I don’t mean those types of things. What I mean is those things that you don’t necessarily have to do. This might not be the right time to buy a new car and pay cash for it. It might not be the right time to say, “Let’s take that really big vacation that we want to” in order to remodel the house and take large distributions out of the portfolio. Now’s a good time to continue doing your normal lifestyle things. But to say, “Let’s postpone some of those larger expenditures” that you might want to do.
5. Put cash to work.
If you’ve got money that you’ve been holding on to as your rainy day money and your access is maybe more than what you need to have, now’s a great time to start thinking about, “Are there things that I could be buying that will increase in value in the future where I can make some money at it?” The analogy I like to use is Kohl’s or JC Penney’s or any of those kind of retailers. I’ve never gone in there with my wife or anybody in our family when we’re together, and we’re looking at stuff, and said, “You know what? That’s on sale right now. I don’t think I want to buy it. I think I’m gonna wait until the price goes to full full price.” Not usually what we do, right?
We usually say, “How do we buy things when they are on sale?” And so, what we would suggest is right now, things in the investment world are down. I’m not saying they’re on sale, but I’ve seen they’re down from where they were. It might be a great opportunity to say, “What can I buy in hopes that it will go up?”
6. Tax loss harvesting.
What tax loss harvesting is, is in your portfolio, whether it’s a non retirement account portfolio, if you have things that have lost money, you can sell them, take a loss, potentially write those off on your taxes, and then turn around and invest them in things that will also go back up. So, for example, if you have a large company stock fund that is inside of an ETF, maybe that large company stock fund is sitting in a growth oriented investment, you potentially could sell that by maybe something that is actively managed, not an ETF, maybe something that’s still large, company-oriented, but not all the way growth-oriented, still have the ability for that to go up, but have taken some of the losses from that investment that could potentially help you in this tax year or future tax years as you do it. So it’s called tax loss harvesting. And we’d suggest you consider that when the markets are down.
7. Think about Roth conversions where they’re appropriate.
So what Roth conversions do is they allow you to take money out of a traditional IRA, pay tax on it, put it into a Roth IRA, and let that money grow completely tax free into the future. So we think about that, especially when asset values are a little bit lower, let’s get them transitioned into a Roth IRA that’s going to give you tax free growth going forward. So, if you haven’t done that, if you haven’t talked to advisor about it, we’d suggest you do it.
8. Make sure that you and your advisor have a disciplined approach to how you’re going to manage your money.
When an advisor says, “Stay the course,” that does not mean don’t do anything. What it means is, don’t panic, take all of your money out of the markets and start doing things that you normally wouldn’t do. It means have a plan. Let’s look at how you’re investing. Should your portfolio have been de-risked? Here at PrairieView, the way we manage money is we look at your portfolio in three kinds of categories. We have what’s called risk neutral. Risk neutral is how much stock we think you should have in a portfolio, given your risk tolerance, time horizon, those types of things. In a normal market, we’re going to be risk neutral. If a market gets really good, we start shifting to risk on and try to take advantage of some of those upswings. When a market gets really bad, we go to risk off.
So, for us in our portfolios, since the beginning of the year, we’ve been in a risk off stance. So when we talk to our clients about, “Hey, stay the course,” it’s not staying the course and not actively managing your portfolio. It’s staying the course and saying, “Let’s be smart in how we do this and not make any radical changes that’s outside of what we’ve decided we’re going to do.” So make sure that you’ve got a plan there. Make sure that that plan is being executed, and don’t get too too nervous about it.
9. Subscribe to the Retirement Readiness podcast.
Follow us on Facebook, and like us on Facebook. If nothing else, set up a time, if you want to, most importantly, either with us or with your existing advisor. Sit down with them, run the projections, make sure the portfolio is doing what it should. Make sure you’re not spending extra money that you don’t have. Look for opportunities to tax loss harvest. Look for opportunities to do Roth conversions. Be patient, and don’t panic.
Until we talk again, I hope you can live your legacy with confidence.
[Disclosures]
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