It’s never easy watching your retirement account drop by 30% or more in a matter of weeks.
It likely took you years, or even decades, to save and set aside that money for your retirement.
Maybe you were finally getting back to a comfortable amount in your nest egg after The Great Recession.
And then a black swan arrives, a virus sweeping the globe, and just like that your nest egg takes a massive hit.
Tens of millions of us are in the same boat, wondering if the worst is yet to come, and what we can do to financially survive what lies ahead.
While everyone is different, here’s a simplified approach that can serve as a blueprint to use for your own situation.
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The First Step
What you need to focus on first is taking a look at exactly what you own in your portfolio.
It won’t be fun. You’ll probably see a bunch of small red numbers where there were once larger green numbers.
But you need to make an honest assessment of the stocks you own and the likelihood that those companies survive what is looking more and more like a recession bearing down on us.
Certain industries are in real trouble, and are more at risk that others.
Any stocks in the airline, cruise line, or travel industry should be looked at with the real possibility of the company going bankrupt. If that happens, the equity will likely be wiped out and the stock becomes worthless.
Even if these companies don’t go bankrupt, they will likely take years to recover and could never get back to break even.
Keep in mind, once a stock has fallen 50%, it has to gain 100% just to get back to break even.
So take a stock like Carnival, the cruise operator. It has fallen from a high of $51.90 this year down to around $14.50 today. That’s a 72% decline.
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But to get back to breakeven ( let’s just say that is $51.90) the stock now has to rise 257%.
I’m not sure I want to wait around for 257% gain just to get back to break even.
So know what you own, and know what the likelihood is of those companies surviving.
Consider selling anything that has a questionable ability to survive a recession.
The Second Step
Once you take an honest look at what you own and how you expect those companies to do go forward, assess your investing time horizon.
If you are retired or near-retired, you’ve got a shorter time frame to work with, and hopefully don’t have too much exposure to equities right now.
The hard part is deciding between selling and moving your remaining money into safer investments (but locking in the loss that you can never get back) or just riding out whatever happens over the next few months or years and assume that the market will come back, like it always has in the past.
If you are younger and still have plenty of years before retirement, the best thing you can do is nothing and just buy more stocks when they are cheaper to lower your average cost, and wait it out until the market (and economy) recover.
Yes, buying stocks right now is scary. But stocks are cheaper today than they were a month ago. Could they get cheaper? Sure. But nobody has ever timed the market correctly.
Buying a little here and a little there gets you a lower buying price, and if prices continue to fall you can buy a little more later.
No one knows how long the coronavirus will affect our economy, or if we will tip over into a recession because of it.
All we can do is make an honest assessment of what we own, what we think those companies will do in the coming years, and if we have a short time frame for a recovery or a long time horizon.
What absolutely isn’t the answer is panic selling everything, because once you lock in those losses, you never have the chance to make the money back. Take a cool, calm approach and understand that this too shall pass.