I’ve written many articles over the years, during good and bad times, focusing on preservation of capital for retirees and those close to retirement. A common sense approach to investing that protects the assets you accumulated during your career.
The recent stock market crash, due to the Coronavirus proliferation, has devastated retirement accounts across the nation. The Sky is Falling , the Coronavirus article I wrote last week discussed these stock market gyrations. The fix for this pandemic may be more devastating than the disease itself. Our lives are now fundamentally changed for whatever time it takes to get through this, due not only to the disease but to social distancing, and all that goes along with that dynamic.
If you are one of those who stayed fully invested in the market or have a large percentage of your retirement savings invested in stocks, ETFs, and mutual funds, you are naturally worried. Many retirement accounts are down considerably and if your portfolio isn’t on life support you may feel like you are. For those who were invested in fundamentally sound investments, there is life after the crash. However, keep your seat belts on. The return to sanity, and company profitability, may not be nearly as fast as we would like.
Our economy was fundamentally sound prior to the Coronavirus pandemic proliferation. That doesn’t mean it will be a quick return to normal and new stock market highs after this battle is fought. With the supply chain disrupted and companies shut down for extended periods, profits will suffer and stock value impacted. All segments of the economy are affected and we don’t know for how long at this point. What I do know is that with time this pandemic will be in the rearview mirror and life will return to normal. Maybe, a slightly different normal with a new awareness of just how fragile our world can be at times like this.
This pandemic has not only shocked the markets, it brought us all back to the reality of life: Times are not always good, markets don’t go up forever, and life as we know it can change on a dime. With over a ten-year bull market run, many became complacent relying on the ever-increasing DOW and S&P Indexes to comfort them along the way. Plus, many were lured into dividend paying stocks because of extremely low interest rates that were great for borrowers and a nightmare for savers; especially retirees living on a fixed income. Those extremely low rates are now back with us.
The market indexes fall when Investors of all stripes see storms on the horizon and sell off holdings to limit their losses. Automated algorithm trading accounts for 50% or more of the trading volume on the exchanges today. They initiate trades based on set parameters established by their creators and often cause the dramatic swings in the markets we are becoming accustomed to.
Generally, experts suggest that within six months of the start of an epidemic the stock market recovers. Hopefully, this crisis will follow suit. There is considerably more disruption involved with this pandemic. However, after the new case curve flattens and people get back to work our economy will eventually recover. Unfortunately, we don’t know when that might be at this time.
Even though retirement account balances are down, if you are invested in high quality dividend paying stocks or mutual funds that hold them, your income should continue uninterrupted in most cases. Some companies with high debt and compromised balance sheets may have to cut their dividend. However, most companies fight to keep their dividends even if they have to borrow to pay them at times. It doesn’t matter if AT&T for example is selling for $28 or $40 a share, it currently pays a dividend of $2.08 per share yearly or 52 cents per quarter to stock owners regardless of the current stock price. This has been the norm in the past; this pandemic, and the fallout associated with it, could change this scenario.
Things seem dire right now due to the human fight or flight response. Today, many would prefer to run, and as fast as they can. Six months to a year or more from now, you may regret taking that action. As I write this on the morning of March 16th the market just opened, down over 2000 points and it was automatically shut down due to circuit breakers established to curtail panic and algorithm selling. The DOW closed down 2,999 points for the day! By far the largest single day point drop in history.
If you were caught during this crisis with considerably more invested in the market than practical for the circumstances ask yourself these questions:
- Do you need the funds in your retirement account NOW to live on?
- Do you currently have sufficient income from annuities, Social Security, and savings to live comfortably until the market recovers?
- Does stock market volatility keep you up at night?
- Are your current investments conservative and include a fair percentage of fixed income investments?
The answers to the questions above may help you focus on your personal situation. Only you can answer them and determine what is best for you and your loved ones. If you have sufficient income now but the market is keeping you up at night, consider converting your investments to a more conservative mix after the market rebounds. Possibly allocating a greater percentage of your total assets to fixed income (bonds, CDs, and cash). TSP participants can consider the G Fund or L Income Fund options.
I recently talked with one of our newsletter subscribers. She asked about CD Ladders. When her husband passed away, their stock investments had appreciated considerable during the bull market. She was concerned that the market would crash and converted the accounts to laddered FDIC insured CDs. A smart move that many retirees today wish they would have made prior to this downturn.
The country is in panic mode with investment accounts dropping precipitously. The descending account balances can feel almost like what one would experience with the loss of a loved one. Especially when you factor in the changes to our daily routine including the uncertainty surrounding this event. With a significant loss, it is often recommended not to make major changes until you had time to grieve.
I wrote the following articles over the past 4 years that you may find informative. These articles were written when the market was pushing ahead and when the market corrected 10 percent at one point. When reading them, consider the circumstances at time they were written.
- How to Keep What You Worked a Life Time Accumulating 
- Is the Stock Market Keeping You Up at Night? 
- Preserving Your Assets (The TSP Rebalancing Act) 
I present my perspective on the day’s current events in my column. These are simply my thoughts and observations as a retiree on significant issues of the day and I’m not a financial planner. Talk with a professional if you need assistance such as Hefren Tillotson , a Pittsburgh based financial planning firm. Explore their website for additional information and for all things financial. They can work up a comprehensive Retirement Master Plan  for prospective local clients.
Helpful Planning Tools
- 2020 GS Pay Scales 
- Retirement Planning For Federal Employees & Annuitant 
- Federal Employee Retirement Benefits Seminars – Check Availability 
- Financial Planning Guide 
- Budget Work Sheet 
- Medicare Guide 
- Master Retiree Contact List  (Important contact numbers and information)
- 2020 Leave and Schedule Chart  (Use this chart to set target retirement dates.)
- Annuity Calculator (FREE Excel chart estimates annuity growth)
Disclaimer: Opinions expressed herein by the author are not an investment or benefit recommendation and are not meant to be relied upon in investment or benefit decisions. The author is not acting in an investment, tax, legal, benefit, or any other advisory capacity. This is not an investment or benefit research report. The author’s opinions expressed herein address only select aspects of various federal benefits and potential investment in securities of the TSP and companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that retirees, potential and existing investors conduct thorough investment and benefit research of their own, including detailed review of OPM guidance for benefit issues and for investments the companies’ SEC filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice. The author explicitly disclaims any liability that may arise from the use of this material.
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