3 Critical Steps to Weather An Economic Storm

  Many university professionals are concerned about the current market downturn and the immediate impact on their retirement accounts. This report shares three critical steps you can take to protect your retirement resources during a volatile market environment. At these times, it is critical to have an effective plan you can execute.

1) Don’t let emotions cloud your judgment

Fear of a continued downward trend might be motivating you to sell stocks, but the proper approach is to allocate appropriately between stocks and bonds (or other low-volatility assets) in your portfolio. Low-volatility assets are there to protect you when stocks go down, while stocks are for growth potential. 

Keeping a level head during a down market is much easier said than done. Even professional money managers find it difficult to overcome the effects of their emotions. They read the news and review the data every day, but are trained to ignore the hype and stick to the process. There has always been uncertainty in the world, including natural disasters, terrorist events, wars and political events. There is always something you can worry about. We recommend ignoring the headlines of the day when it comes to making investment or financial decisions. When emotions become involved in finances, people often make bad decisions. Short-term considerations should never supersede long-term investment goals. As the old saying goes, “This too shall pass.”

2) Rebalance your portfolio

During the financial crisis of 2008 to 2011, when stocks were down almost 50 percent, many people were clamoring to get out of the market. Instead, they should have been rebalancing their portfolios. Rebalancing helps keep portfolio risk at a level appropriate for your situation. If you don’t monitor your portfolio regularly, it can get out of balance—it can happen extremely quickly during market volatility. 

People who started the financial crisis period with a 50 percent equity and 50 percent fixed-income (or bond equivalent) portfolio may have seen that ratio fall to equities equaling only 30 percent at the low point of the stock market plunge. So when the rally came, those people didn’t have enough equity value remaining to dig their way out of the hole. Philosophically and statistically, they should have been adding to stocks, but emotions told them to sell even more.

Here is the rebalancing process:

• Determine your ideal asset allocation, and use it as the basis for the following process, which you should do at least annually
• Determine your portfolio’s current asset allocation
• Buy and sell assets to achieve the desired asset allocation

If you are rebalancing your own portfolio, please exercise caution.  In the past, the primary investment category people have turned to for safety and diversification from the stock market has been bonds. As interest rates have declined to historic lows, bonds have become increasingly risky and may not offer the safety net people are seeking

3) Maintain adequate diversification

While it may be tempting to reallocate your portfolio more heavily into the sectors or investments that are stable (or rising) during a market downturn, it is important to maintain adequate portfolio diversification. A portfolio without proper allocation can be subject to additional risks. As a tool to that end, many universities offer unique products that are often not closely linked to current market performance. Examples include TIAA Traditional, Valic Fixed Account, Minnesota Life General Account, or other stable value funds that are characterized by less volatility and risk than equities. Our philosophy is that this type of asset is a key cornerstone of portfolios in any market situation. 

If you cannot insulate yourself from allowing emotional reactions to the news spilling over into your investment decisions, you may benefit from professional wealth management services. Our firm offers comprehensive financial planning and wealth management services to university professionals at campuses across the U.S. To learn more, explore our website, or call us at (844) 948-0894 to learn how we can help you.

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Learn How to Sustain Your Retirement Accounts During Crisis & Beyond

 Register for a 1-on-1 Virtual Information Session to learn...

• Critical steps you should take now to protect your retirement accounts 
• Common mistakes often made during times of financial crisis
• Strategies for your monthly retirement contributions during volatile markets
• How to adjust your retirement income during down markets
   

 

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