Regaining Control of Your Retirement After COVID

We will never go back to the world we had before COVID-19, and the lens that we used to evaluate ideas, markets, economies, and personal choices over the last decade may not be sufficient for the next decade.

Life has changed; how do we get back on track with the goals we want to achieve?

Although it is natural to feel that we have little control navigating the aftermath of a worldwide pandemic, there is one superpower we all have – focusing on those key areas that are IN our control.  

Staying Disciplined – Capital Markets Work Over Time

With all the uncertainty in the world right now this seems like an all but impossible task.

Everywhere we look, from the news channels to social media, to our own friend groups, there are more opinions than ever about the economy. The facts are this, no one can reliably forecast the market’s direction or predict which stock or investment manager will outperform. It has even been academically tested – attempts to better the returns in the capital markets through market timing or aggressive trading has proven harmful to long-term investors. 

As tempting as it may be to cash out of the market and hide it under your bed after a downturn, this reactive cycle of excessive optimism followed by overwhelming fear may lead to poor decisions at the worst times. The key to long-term success is staying invested through the waves of volatility.  

Trust Your Plan

Hopefully if you are considering retirement or already made the leap, you have a comprehensive personal financial plan that serves as a framework for your decision making. Your retirement will never play out exactly like numbers on a spreadsheet, of course, but if your plan was properly stress tested, it has already accounted for major market swings. In-depth testing and simulation were included in the analysis leading to your plan to help identify and prevent retirement pitfalls. 

Keep Costs Low

We cannot control markets, but we can control how much you are paying to access them. It is easy to get sucked into an investing situation with significant hidden fees. Certain investments have high internal expenses that are only mentioned inside their prospectus in small print. This is coupled with custodians operating under the guise of being low cost that actually make their money by selling client information and/or manipulating spreads. These fees can eat away at your portfolio’s value over time. 

Instead, we advise sticking to low cost, low turnover, passive securities managed by a fee-only fiduciary. These holdings may not only save your portfolio money, but can also help minimize investment-related taxes. 

Global Diversification

Within your portfolio, you will be investing in a variety of asset classes. These will vary depending on size, type, and location of the company. By investing in holdings across the world, you are able to not only reduce the risk your portfolio is exposed to, but you are also positioned to capture returns wherever they may occur.

Liability Driven Investing

If you are still nervous about participating in the market, a liability driven approach is another way that you can help control what happens with your finances. This safety-first method operates by coordinating the maturities of individual bonds with your annual essential living expenses over a 5–7 year time horizon.

The remaining assets are invested in stocks for long-term growth and to ultimately replenish the bonds.

Going Forward

People will always struggle to separate their emotions from their investment decisions. It’s okay to not have all the answers. Your focus needs to be on letting go of the things you cannot control, focus on those that you can. A wealth advisor can help with coordinating your resources and income needs with the least amount of risk so that you can live without financial fear during retirement, confident that the money will be there when you need it, just like a paycheck.

Kristi Tidwell, CFP, CDFA