In March of this year, in response to the growing COVID-19 pandemic and resulting economic challenges, lawmakers approved a two trillion-dollar relief bill called the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Some of the features of this act included recovery rebates of up to $1,200 per person plus $500 for qualifying child, extending tax filing deadlines, waiving required minimum distributions (RMD’s), allowing affected individuals to take distributions from their retirement plans and the Payroll Protection Plan (PPP) for small businesses.
Although that helped, it quickly became apparent that much more stimulus was going to be needed to help families, businesses and the economy survive and ultimately recover from this ongoing pandemic. As Congress discussed additional stimulus packages, several things became clear. First, this virus has caused severe damage to our economy and will continue to do so for the foreseeable future. And secondly, when things eventually return to a new “normal” there will be long term ramifications from this pandemic. The societal and economic costs have not yet been tabulated but will be significant. The stock market has been reflecting this severity and uncertainty as well.
The markets dropped violently in late February and March going from a 52-week high to a 52-week low in record time. They rebounded in April off their lows as investors appeared to be more optimistic due to the Fed’s easing policies, Congresses quick response to pass stimulus packages, a flattening of the curve and lower worst-case projections. It is uncertain whether the recovery in the markets will be a “U” shaped recovery, or a “V” or “L” or any other letter of the alphabet for that matter. But one thing is certain, we will see continued volatility in the markets over the next twelve months. So, how do you protect your retirement savings during all of this?
One of the most important things to remember during this time is to not let your emotions dictate your financial decisions. That can be a costly mistake. During the financial crisis in 2008, many people put their money into cash after they were down significantly and then left it in cash for an extended period of time, ultimately missing out on the recovery that followed and locking in their losses. With interest rates as low as they are today it is even more crucial to have a plan on how much is an appropriate amount to keep in cash, which can vary dramatically depending on your unique circumstances. Did you know that if you would have missed the 10 best days in the market over the past 25 years it could have cost you almost 2% in your compounded annual growth rate? That is why it is so important to have a financial plan in place, to follow that plan, and then to regularly review your plan and make necessary adjustments to it as needed.
To help you take advantage of the constantly changing economic landscape it is important to have a good team around you. That includes an actively involved financial advisor who is putting you in an appropriate portfolio based on your needs and goals, a proactive tax professional who is implementing tax planning strategies that can help you maximize tax deductions, and an attorney who is making sure that your wills, trusts, power of attorneys, etc. are current and up to date. Preferably, you will want them to communicate with each other as well so that your “team” is working together to help you achieve your goals. Each one is knowledgeable in their respective areas so you will get the most benefit by having each share their ideas and plans with the rest of your team. Unfortunately, many people work with their professionals separately and don’t realize the importance, or benefit, of having them communicate with each other.
There is no way to predict what the markets are going to be doing next month, next year, or even tomorrow, but when you have a good team surrounding you, that allows you to have peace of mind that you have a plan in place and that you are on track for your financial and retirement goals no matter what the circumstances. No one has a crystal ball. I like to remind my clients that I am not a weather forecaster. I am a pilot helping them get to their destination safely no matter what weather conditions we encounter along the way. It is your retirement nest egg. Make sure that you have a good team in place.
The Wolfe Kobes Group
Baird Private Wealth Management