Listen to the news lately and it's easy to be fearful. The markets are experiencing panic selling. Oil is crashing. The coronavirus is spreading.
It is normal to be afraid. It's been a decade since we've seen price swings like we are currently experiencing.
As a South Dakota Financial Planner this is the advice I offer to my clients:
1. Stay Invested
During market turmoil it's easy to want to do something. It's a natural response. If the market continues to decline you can always say at least I took action.
The two problems with this approach are knowing when to get back into the markets and what to do with the funds in the interim.
- The average investor (and professionals for that matter) are not good at timing the market.
- Investors seeking the safety of government bonds are losing money after inflation.
Don't get off the rollercoaster in the middle of the ride. Wait for markets to normalize and then revisit your strategy.
2. Review IRA Distributions & Conversions
One of the biggest challenges in retirement is minimizing taxes as you take money out of retirement accounts. With the market sell-off there is an opportunity to transfer assets at depressed prices.
Say an investor owned 100 shares of Acme Company that was worth $200 a share. If an investor moved that asset out of a tax-deferred account it would create $20,000 of taxable income.
Let's imagine after this market panic Acme has fallen to $150 a share. Moving that asset at a lower price would only create $15,000 of taxable income for the investor.
Review taking money out of your IRA either as a normal distribution or by performing a partial Roth conversion. It's a great way to take constructive action in a market decline.
3. Look at Social Security
A lot of people like to delay Social Security when possible to maximize their benefits. During rising markets this is a great strategy as investments can foot the bill for living expenses.
However as markets decline investors have to sell more shares of their investments to fund their lifestyle. Consider reviewing whether to collect Social Security sooner rather than later. By getting guaranteed income coming in each month you will have less need to sell your investments at depressed prices.
4. Refinance Long-Term Debt
If you have a mortgage now is a great time to consider refinancing. Interest rates are at historic lows.
Refinancing overs you several choices for your unique situation. It gives you the ability to:
- lower monthly payments
- take cash/equity out of your house
- pay off your loan quicker
5. Stay Healthy
One of the best ways to make rational choices in markets like these is to stay healthy and combat stress.
- Get plenty of rest
- Drink a lot of water
- Wash your hands
- Turn off the TV
- Get outside
It's normal to feel worried at times like these. It's easy to want to take action to feel proactive. Just make sure the actions are constructive long-term choices rather than knee-jerk reactions. If you need impartial advice from a South Dakota fiduciary please contact me.