As you’ve reviewed your account statements this year, you have likely noticed that the COVID-19 pandemic has had an impact on your investments, particularly your 401(k). You may be trying to decide whether to move your money or keep it where it is, based on the ups and downs of late. Luckily, things are starting to look better, and while there are still many variables to consider, with a cautious approach, you can determine what, if any, steps you should be taking with your investments in times like these.

Avoid making sudden decisions.

No matter what your account balance is and how alarmed you may feel, don’t make any sudden investment decisions. Now, more than ever, it is important to avoid impulsive reactions, especially when it comes to your retirement account. Instead, focus on doing careful research before making changes. You might feel inclined to check your account balances more frequently, but resist this temptation, if possible, because it may make you feel even more anxious.

Remember, less risk means reduced returns.

In these uncertain times, you may have considered reallocating assets to those less affected by the stock market, like bonds or money market funds. However, these less-risky investments yield reduced returns. Since 2010, the S&P 500 has seen gains of more than 13 percent, while the Bloomberg Barclays U.S. Aggregate Bond Index returns were only 3.5 percent. So if you’re in a position where you can ride out the risk, your returns may be higher in the long-run, despite the current waves.

Study the stocks and stay diversified.

It may be tempting to buy a stock because its price is low, but prior to doing so, make sure you review the company’s history, strengths and weaknesses. Looking to the past to see how it fared in previous downturns may be a good indicator of if it has a good chance of recovering in the future. Also, consider the industries in which you are thinking of investing. Is a price plunge temporary or an indicator of bigger issues that could cause further declines? No matter what, diversification is key when it comes to investing and puts a level of protection across your assets.

Check your asset mix.

If you’ve been employed by the same company for several years, your 401(k) allocations may need to be updated. Many account holders don’t make any changes after they sign up, but your previous investment strategy may be too aggressive now that you’re older – and even more so, in the midst of an unstable market. It’s recommended that older investors, especially those closer to retirement, move some of their stocks into bonds. Since not all employers offer every type of investment, review your account to see what allocation options are available to you before you make changes to your 401(k).

Think of the timeline and your risk tolerance.

The ideal mix of investments for you depends on your age, when you expect to retire, and how much money you’ll need to live the retirement lifestyle you’ve envisioned. The closer you are to retirement age, the less risky your investment portfolio should be (meaning, you’d have fewer stocks and invest more in CDs or savings). If you still have many years before you retire, safer assets might not make sense for you, even though they may seem appealing at the moment. Instead, you might look to investing more heavily in stocks or high-yielding bonds, because you have more time to afford the risk. For a visualization of risks in relation to investment types, watch our “Risk Management” informational video.

Work with a professional.

As you decide how to move forward with your investments and your 401(k) account, particularly in challenging times like we’re facing, contact the experts at Wickham Financial & Insurance Services. Because we specialize in financial planning, we can help you find the investment balance that works best for you based on where you are in your career and retirement planning.

 

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