Market crashes are somewhat inevitable. Hopefully, you knew this before you put any money in the market but if you didn’t – no fear, we will be going over exactly what you need to do in a market crash with your retirement savings. So buckle up and make sure to take some notes!
Coronavirus has had an impact on every investor’s portfolio. For the most part, it has been a negative impact but I am sure there are a lucky few who are actually getting a nice return on their invested money right now. Those of us who are less fortunate and who are feeling the hit to our portfolios, we need to really make sure every move we make is the right one.
While downturns in the market can often provide solid opportunities to buy investments at a lower than average cost, it is important to make sure that you are still acting in a way that will benefit your end goal. Do not sell your holdings just to buy some cruise ship stock. Then you would just be making any losses real by selling and buying an investment because of whispers of other investors not doing enough research.
Before you go selling or buying anything in your retirement fund, whether your 401k, IRA, or whatever investment vehicle it may be, make sure to go through these steps prior to making any move.
- Take a good look at what your end goal was.
- Re-evaluate your risk tolerance.
- Fully understand your current portfolio and current diversification.
- Do your research.
#1. Take a good look at what your end goal was.
When you first invested your money, you likely invested it with a plan and a whole set of asset class allocations to go along with it. What does this mean? Well, don’t let a downturn or crash make you completely change your plan. Sure, you do have to make some strategy calls but always remember what your end goal was in the first place. You do not want to invest too much money into “the next potential amazon” and get burned when your allocation is too heavily invested in that asset class.
#2. Re-evaluate your risk tolerance.
Are the less than optimal returns easy for you to stomach? Do you know that you’re in the investment game for the long haul so you’re OK with losing short-term money? If you answered yes to these, then you are probably fine investing some more money into the market. However, if you answered no to either of them I would highly advise you to reconsider investing any more of your money into the market. Downfalls and crashes are when your risk tolerance is tested most so be very aware of how the current state of your portfolio aligns with your comfort level.
#3. Fully understand your current portfolio and current diversification.
You want to take a good look at all of your investments at this time. Did the current market state invest you too heavily in one asset class so your total portfolio needs to be evened out? Do you own companies that are going to likely be profiting during this pandemic or are the companies likely to be suffering? Really understand the state of your total portfolio prior to getting any ideas of how you could get rich quickly by buying some airline stocks.
#4. Do your research before making any moves.
Ever hear the phrase, “if you’re the smartest man in the room then you’re in the wrong room”? Well, let me tell you, with the internet and quarantine this became nearly impossible. I am begging you, please google everything you are even considering investing in. There are a plethora of analysts whose full time job is to look at potential stocks rising in value. Read everything they have written about what you are considering.
There are plenty of sites and authors out there who have done loads of research on all types of investments and their reactions to coronavirus. Be overeducated. Fully understand where you are throwing your money prior to reallocating any of it.
These are scary and uncertain times for everyone, however they don’t have to be scary investment times. Act smart and follow these steps outlined above that show what you should do in a market crash for your retirement savings. If you do, you will not make hasty mistakes and follow the crowd. By going through the four rules outlined above, you can potentially save yourself from making a huge investment mistake and losing your hard-earned money!
What is your investment strategy during coronavirus? Let us know in the commetns below!
For more recent reads, check out these articles: