As the Coronavirus crisis continues hitting all countries, the financial market is being negatively affected on a global scale. On top of that, a wide range of households are asking themselves how long this economic bump will last, and which will be the economic consequences for their saving accounts. In most cases, investors and small savers are cautious and feel high levels of scepticism.
Focusing on those savers who are seriously thinking about their retirement accounts, these uncertain times are a fire test in terms of plans and achievements. While some pensioners are looking for new ways that allow them to access to affordable borrowing, some others are aiming to invest on financial products, or even setting new long-term investment goals.
All factors are determinant here, as they will reshape those funds and accounts that will be used during their golden years. As a basic premise, having a master strategy would be a core point that it is worth to review.
To raise the discussion, we asked six experts in the field of finances to shed some light on how to make the most of a retirement account during this COVID-19 crisis.
20 tips to Improve Retirement Accounts/funds During the Pandemic: Do and Don’ts
Do not panic sell
Number one tip is to keep calm and meditate every decision you are about to make on your retirement account. Mr SR, Personal Finance Consultant at Semi Retired Plan states that as we all now, the market is currently subjected to high levels of volatility. “One of the worst things you can do for your investment plan is to sell large quantities of shares, as you will lock your losses”. It is better if you stay where you are at the moment and wait until the market has eventually recovered”. Do not let yourself get lost into the current chaotic scenario.
Set up a bucket strategy
Be aware of the fact that a part of your retirement account is to make the most of your money while you take withdrawals. Most of the people do not know how fast a retirement nest egg can vanish. It might be worth to split the accounts that you currently have, using one account to take out money, and the remaining ones to carry investments or any other saving goals that you may have.
On the other hand, if your retirement account is not performing as expected, and you need urgent money, you can always apply for an emergency loan. These won’t affect your credit score and will guide you to some peace of mind.
Create an emergency fund cash reserve
If it is hard for you to keep untouched a retirement fund, it may be a good idea to create an emergency fund cash reserve to use in the short-term. It is always good to save some extra money while you can, and place it in a different account. This way, you will have some extra cash available in the case that you need it. On the other hand, be aware that you should not rely on your retirement investments until it is time to do so.
Alternatively, you may apply for a guarantor loan if you are in need of some extra money. The good thing about these kinds of loans is that you can rely on another person, who would be your guarantor if that you cannot afford payments. This is also a good borrowing option for those who do not have a good credit score and/or are looking for flexible repayment terms.
Practice a minimum spending-investment strategy.
It is vital for your investment strategy to not to make abrupt movements. By contrast, you could focus on making small investments over a long-term period. This way, you will minimise the volatile effects of the market. For example, you could contribute with a fixed percentage out of each of your paycheques.
Maintain a long-term investment horizon
The investment market can be extremely volatile in the short term, however in the long term things may eventually change. Maintain a long-term investment plan when considering reliable investments such as stocks and other financial products. In the meantime, it is important to keep a track on what is happening in the market just now, but remember that the long-term is much more reliable in terms of investment.
Check minimum taxes/fees accounts
It would be an interesting idea to check for what kind of retirement accounts you do qualify. It is key to find out the different taxes and rates that apply to each type of account and spot the perfect choice for you. You might also consider speaking to a financial advisor on what it is best for your funds.
Diversify your portfolio
It is of common knowledge now the expression ‘do not put all your eggs in the same basket’, which means that you shouldn’t put all your investments in the same place. This is, diversifying your portfolio. You should keep active a wide range of investment funds to avoid running too many risks. “It is a reliable strategy to split your money into different types of funds, because if any particular fund punishes you, at least you won’t lose everything at once”. On the other hand, Jeffrey Barnett, founder of Fintegrity, emphasises on the importance of the quality of those bonds that you want to invest in: “At current low-interest rates on high-quality bonds and equivalent bond funds, a diversified portfolio of stocks is much more likely to produce a positive outcome than bonds over long periods”.
Keep expense ratios low
If your retirement account is more focused on investments, it may be worth to investigate the different fees that your accounts may accumulate, as they are the worst enemy for the returns that you will get. You should carefully consider those kinds of funds that are a better choice, and those that are not that interesting. For example, exchange-traded funds normally have low expense ratios.
Investing in bonds
From a bonds investment perspective, you should be careful when comparing those financial products you want to invest in. This is not the perfect time to invest in long-term bonds that mature in 10 or more years, as interest rates are expected to fall, making this option highly unattractive. You might rather invest in short or intermediate maturities (from 5 to 7 years). On the other hand, it is not recommendable either to invest in government funds, as their interest rates are not the best now. Alternatively, focus your investment ideas on corporate bonds or actively managed mutual funds.
- Hold high-quality bonds
Keeping stable value funds or high-quality bonds will help you get some stability. Therefore, when stock values fall, you will be able to meet those expenses that you may have without having to sell funds when stock prices are low.
- Do not invest on Lifecycle funds
Investors commonly use these types of funds as they follow an investment goal. Lifecycle funds have increasingly large allocations to low-yielding bonds in nearer-dated funds. Low yielding bonds are not a good option for a long-term investment strategy, as the current interest rate is expected to last two more years. A more profitable option would be to choose your asset allocation.
Use a brokerage window option
A brokerage window option allows you to buy and sell investment products via a brokerage platform. You will take part in a wide range of investment options, which will provide your retirement account with far more flexibility in terms of pre-tax savings into almost any investment that is available in the market. With brokerage window options, investors can choose from a variety of exchange-traded funds, such as bonds and stocks publicly traded.
Other things to avoid when investing
‘Junk bonds’ or ‘high yield’ bonds can be a good investment option for an investor who is open to accept higher risk in exchange for a higher return, as the entity that issues them will default on its debts. Therefore, if you are willing to make the most of your retirement account and do not want to run higher risks, do not include low-quality bonds into your investment goals.
Evaluate the primary goal of your retirement account
From a different point of view, Ryan Nietert, President of OakCrest Capital considers that you should keep in mind what the initial goal of your account was: did you establish it just for the shake of pure saving? Or maybe you are looking to invest in financial products? Things may change also depending on the years your retirement account was set for: was it for ten, or was it for more years?
Do not let the media create a massive impact on you
The media plays a vital role now, sharing tons of news that can lead to massive changes in behaviour within the population. Keep yourself updated regarding the current economic situation and especially with regards to the financial market. Despite that, do not let yourself get lost on what you see on the mainstream media, and take some time on contrasting that information that is relevant for you and your current saving plans. Do not let the media freak you out in doing things that you normally would not do.
Rebalance your account
Be aware of the importance of rebalancing your account to keep it in line with risk tolerance. If you do not follow this premise, your account may suffer from downturns, which can make it more conservative if not rebalanced.
Increasing saving rates
Following Michael Hamelburguer advice, CEO of The Bottom Line Group, the best receipt to make the most of your retirement account is to increase your saving rates each year. “Under these premises, this will help you out to raise your account over time. Taking advantage of escalation clauses, as they increase savings rates by 1% every year might be a top option for you”.
Place your retirement account on a secure place
On a different perspective, Andrew Roderick, CEO of Credit Repair Companies emphasise the discourse on avoiding investing retirement funds into stocks and shares. “Retirement plans are often uncertain and with the current pandemic situation, it becomes a nightmare for those who have saved for years”. He highlights the effects that the 2008 crisis caused to millions of people when the market crashed, as a wide range of retirement accounts vanished from one day to another.
Benefiting from getting older
One of the good things of getting old is the opportunity to be eligible to receive certain benefits, such as the state pensions or universal credits. You may have to check if you are entitled to any of these benefits, as personal circumstances are determinant here. Also, keep in mind that you can also qualify for other plans or discounts, such as free prescriptions, tests, travel discounts etc.
Retire in the right place
Not all countries are the same, and not all tax systems treat retirement accounts the same way. Some cities have certain tax dividends and interest, so it may be valuable to evaluate those if you are looking to pack your things and move out to a different place.
Start saving as soon as possible
Start saving money now, even if you consider that it is too late to do so. Following Jackie Murphy’s advice, from Financial Sharktress, now it is a great time to relocate your phone and insurance plans. “Even car insurers are already cutting premiums on car insurance. It may be worth it to call your provider, explain your situation if you are at home and not driving as much, to see if they can provide you with a cheaper policy”.
Ask for a second opinion
Last but not least, do not be afraid of asking for a second opinion if you are not capable of focusing your saving account on those goals that you truly desire. It is better to receive guidance on time than to wait until it is too late to do so.