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Fearing Fear Itself

Richard Quinn

SEEING YOUR IRA or 401(k) decline precipitously is bad enough. Locking in those losses is far worse. The good news: I’ve perused various Facebook retirement groups since the Russian invasion of Ukraine and have seen few signs of panic.

For instance, here’s some good advice from a prudent retiree: “Stay the course, but in the future make sure you have enough in a cash reserve for at least one year of planned withdrawals or RMDs,” meaning those pesky required minimum distributions that must be taken each year by those of us age 72 and older.

Make no mistake: Once you’re retired, your perspective changes, as the reality of risk becomes more apparent. Consider this comment from a recent retiree: “Everyone says hold and the market will bounce back. That is what I have always done, but it is a bit more scary when you are no longer earning.”

Those sentiments were echoed by another recent retiree: “The market tanked just as I was about to withdraw funds for our first couple of years. Were using a cash cushion for now, but will eventually have to start withdrawing, despite current market conditions. I’ve never worried about market swings in the past. I’ve known time was on our side. But now the time has come and I hate starting out [retirement] in a down market.”

At some point, time does indeed run out. That’s why a more conservative investment mix goes with aging. One retiree expressed this concern: “I wasn’t worried about market dips, there is always time to recover. But now, 10 years into retirement, there isn’t that much time.”

No doubt the Facebook comments would have been more panicky if stocks hadn’t quickly recovered from Thursday’s initial sharp market decline. Still, many folks have seen their portfolio take a beating in 2022. It isn’t easy watching your investments decline, especially if they represent your life’s savings and the money you’ll live on in the years ahead.

My Fidelity Investments’ account, which I foolishly look at every few hours, is down more than $200,000 since December. “Stop looking,” I tell myself.  What I won’t do is move out of stocks. In fact, in recent days, I convinced myself to buy more of a large-cap index fund. I also bought more of my former employer’s stock, which has taken quite a dip.

Back in 2008, when I was working in employee benefits, I tried to encourage the company’s workers to leave their 401(k) alone and keep investing in stock index funds. In most cases, my pleas fell on deaf ears. I hope you won’t be among those who, in 2035, talk about losing their retirement funds in the market crash of 2022.

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Peter Blanchette
Peter Blanchette
9 months ago

One other thing those Fidelity Investment investors(and other investment companies) should not do and that is to read Jeremy Grantham. He believes we are in for a 50% correction. He calls it a “SUPER BUBBLE”. I would not read him if I were you.

R Quinn
R Quinn
8 months ago

Many years ago I was at a conference and the speaker was talking about the stock market. The DOW was at around 3000 and he predicted predicted it would hit 10000 in a few years. The room was filled with laughter.

Peter Blanchette
Peter Blanchette
8 months ago
Reply to  R Quinn

You’ve made my point! Thanks very much.

R Quinn
R Quinn
9 months ago

This isn’t good “Over the past few days, Alight Solutions has seen 401k investors react, with the past three days of trading showing higher than normal trading activities. As Alight has seen during other periods of heightened volatility, 401k investors moved away from equities to fixed income.”

Ginger Williams
Ginger Williams
9 months ago
  • This is why I started building a CD ladder outside my retirement accounts. Yes, it’s losing ground to inflation, but I want to retire in 2025 with enough cash to cover living expenses for a year. My pension and that slowly growing cash account are calming during market corrections, so I’m not tempted to fiddle with my asset allocation. When the value of my account drops, I just remind myself that my monthly contribution is buying cheaper stock and that I have a cash cushion.
Ormode
Ormode
9 months ago

Many financial advisors are now starting to question the idea of putting all your savings in retirement vehicles. Maybe your tax rate in retirement will be higher, maybe you’ll want (or have to) retire before age 60, maybe you’ll just want options to manage your retirement income. If you can max out your 401K, you should have a high enough income to save in a regular brokerage account. If not – well, 1/3 brokerage, 1/3 Roth, 1/3 401K may be the way to go.

R Quinn
R Quinn
9 months ago
Reply to  Ormode

Good point. Although I live off a pension and SS, my 401k equals only about half of my investments. The other half is a brokerage account made up mostly of index mutual funds, municipal bond funds and two dividend paying stocks. It provides flexibility and tax free or advantaged income without touching principal if and when it’s needed.

R Quinn
R Quinn
9 months ago

Good strategy. Managing the worry factor is always important even it requires a strategy that “experts” may not agree with.

Mark Royer
Mark Royer
9 months ago

Very good advice. We may get the opportunity to really put this to the test (I hope not) if a certain bully nation decides to invade a certain island that is a world leader in chip manufacturing, while the eyes of the world are on the current bully nation invading its neighbor. I think the advice will still be good. Stay the course.

Ormode
Ormode
9 months ago

This is where conservative dividend growth investing shows its strength. While the market may be down, blue-chip dividend-paying stocks continue to pay, and in fact there have been a lot of dividend increases lately. The market may rise or fall, but conservatively valued companies with lots of cash flow will continue to pay out to their investors.
I have been retired for eight years, and my income has steadily increased.

R Quinn
R Quinn
9 months ago
Reply to  Ormode

Good point, I follow that to some extent, but you need a pretty large portfolio to generate dividends sufficient to live on.

Rob Thompson
Rob Thompson
9 months ago
Reply to  Ormode

Everyone: ^^^ THIS^^^

(Ormode, ditto!)

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