How is the falling market affecting your retirement plans?

BY FAZAAD BACCHUS

Over my 30 years in this industry I have seen many clients who prefer to make very little return on their investments at the expense of their overall retirement plan. What causes a person to say that “I would rather have a small return than take a bigger risk for a better return?”  Most people would rather take a small loss over a large gain coupled with large potential losses. Ask yourself, would I take an investment where I can earn a 7% return but can suffer a 7% loss just as well or am I more comfortable with a 3% return and a possible 3% loss?

When the markets behave as they have done this year, those who are with the 7% typical return investments have seen their investments sink much faster. Most investments of this caliber have been down 7% and more year to date and it’s daunting to keep watching your money fall. The urge to get out of these investments, quit and sell become your watchwords. If you do, you might have just made a huge mistake. Have you heard of paper losses? Paper losses or unrealized losses are very different from realized losses. If you sell then the loss is realized and you take the loss with you.

In planning for your retirement it’s important to talk with your advisor about your overall expectations and what is your expected average return. Investments are not constant and can also be quite volatile. This year for example we saw the markets fall approximately 20% in the month of March. This is isn’t of course, our normal or caused by fundamentals; this was pandemic which by the way hasn’t come to an end as yet. I have clients who refused to open their statements at the end of March to look at their quarterly statements, fearing what it may look like. Fortunately most of my clients are close to where they started at the beginning of year and we are well positioned for the rest of the year.

It’s important to talk with your advisor, if you have one. It may be a good time, now that the market has revived, to review your risk tolerance and make adjustments where possible. You might not be able to stomach another fall or worse yet if we have a second wave of COVID-19 and the markets tank. It may be a good time to consider investments with lower risk, especially if March was a tough month for you.

Another possibility to talk to your advisor about is getting into some guaranteed investments. There are some segregated funds that provide guarantees on principal, but that’s not as important as a monthly income for your retirement. Some companies will offer you a guaranteed income for life so you never run out of money. Whenever you pass away the residual balance will be paid to your beneficiaries. There are options you have, but talk to a qualified advisor.