Tending to your investments and preparing for retirement has become an art.
Illustrations by Drew Bardana
Walter Bouchard, a financial planner with Bouchard & Associates in Fredericksburg, understands why some clients had frayed nerves by the end of 2020. The coronavirus sent unemployment soaring and sparked a rollercoaster stock market. As a former Marine, Bouchard believes in remaining calm and not panicking every time the Dow plummets. “Marines are taught to prepare and train before something happens so that when it does, you are in a better position to handle the situation and accomplish your mission or achieve your goals,” he says.
The coronavirus has added a new element of uncertainty for people nearing retirement in Virginia and elsewhere. A study by Transamerica Center for Retirement Studies indicated almost a quarter of people who are currently or recently employed believe the pandemic may delay their retirement. However, financial advisors point out that uncertain markets also offer opportunities.
“My approach to working with people integrates what we call E3, which is to educate our clients about their options, equip them with enough and the right types of information to empower them to take action,” says Bouchard. He compares personal finance to gardening. “You do not have to constantly fiddle with it, but you shouldn’t just wait until some big threat comes along to tend to it. I recommend that you diversify your types of investments, such as stocks and bonds, just like most people have a variety of things in their garden,” he says.
Bouchard warns that some people believe their investments are at lower risk than is actually the case.
Although Bouchard emphasizes the “e” words, one “r” word has dominated 2020: risk. In the financial world, a mask offers no protection. Risk tolerance is the measurement of an investor’s willingness to accept uncertainty in returns. Bouchard warns that some people believe their investments are at lower risk than is actually the case. “Review your risk tolerance levels and your portfolio’s allocation and exposures to risk,” he says. “All too often people think they are in conservative or moderate portfolios or protected because they are diversified, but then when we look at their actual risk it is moderately high risk to even extreme risk. Consider making adjustments when the markets are at high levels to harvest gains and reduce your risk exposures, especially if you are expecting some storms.”
The 2020 markets defied the naysayers who predicted the pandemic would cause a sustained crash. After the steepest fall in global markets since 2008 in March, markets surged, but slid again in September. Financial advisors say falling markets also offer opportunities. “Everyone knows ‘buy low, sell high,’ but not enough Main Street folks do that,” Bouchard says. “Think about it like shopping for anything else you might buy. If it goes on sale or on clearance, isn’t that a better time to buy? Cheap ‘junk’ is still junk, but buying good things on sale or clearance can be a great idea.”
Anta Sene-Reed, a financial advisor with Edward Jones in Virginia Beach, says 2020 offered opportunities for investors. “Look for your opportunity to add to that portfolio. During the pandemic, a lot of my clients have taken advantage of really good deals in the market because of the downturn we have experienced,” she says, adding that volatility is inevitable, but investors should focus on long-term aims.
Knowing when to buy is just part of the equation. Investors are often unsure about what to buy.
However, knowing when to buy is just part of the equation. Investors are often unsure about what to buy. Should they put their money into gold, land, or even Bitcoin?
Tom Love, senior vice president of The Main Street Group in Glen Allen, says gold has averaged slightly below inflation and performs well when inflation is expected to be higher. “It doesn’t have a good long-term track record, so it’s not a good long-term investment,” he says.
“The key with property returns is income, via rent or other means, bringing the total return similar to the stock market over time. It can take more time, but it’s a good alternative to investing in the stock and bond markets.”
Love believes Bitcoin is speculative. “Limit your total exposure and watch it closely to ensure it is still something you want to own.” Investing in U.S. Treasury bonds is a better bet against falls in the market, he says. “The longer-term bonds will do best in the worst periods, but they have more interest rate risk.”
Selling stock on a rising market to avoid risk also has its merits, according to Bouchard. “This is an excellent time to sell off some investments and lower your risk exposure, if that is part of your strategy or if you expect things to turn sour,” Bouchard says.
The turbulent market has led many Virginians to consider changes to their 401(k) plans or other investment allocations. It’s a personal issue and there are no easy answers, says Preston Ivey, a program manager and investment representative with CUSO Financial Services, located at 1st Advantage FCU in Yorktown. “Volatility can work in your favor,” Ivey says. “One great feature of 401(k)s and other retirement plans is they offer individuals the opportunity to ‘dollar cost average’ into the market,” in other words, buying on a set schedule. “It’s allowing you to buy when the market is at ‘full price’ as well as when it is ‘on sale.’ The key is sitting with an advisor and discussing both short-term and long-term goals to develop a plan and sticking to that plan,” Ivey says. He warns there is a lot of “false and misguided information” about products.
Although Ivey is not averse to changes to 401(k) plans, he does not believe these policies or credit cards should be used for a quick cash fix. “I generally do not recommend loans from your 401(k) due to the possible tax consequences if you were to lose or leave your job during the loan payback period,” Ivey says. Loans and taking cash out from a credit card should be a “last resort.” “The rates charged on cash advances are often considerably higher than the rates charged on traditional purchases, making the ‘cash advance’ last longer than intended and much more expensive,” Ivey says.
Ivey is acutely aware of how the pandemic has made many people rethink when they should retire. “The longer you work, the less financial strain you’ll put on your retirement plan, therefore giving yourself the possibility of your plan lasting longer,” he says.
Low interest rates seen in 2020 have put most people’s largest asset, their home, into the equation. Scott Rogers, a real estate broker with Funkhouser Real Estate Group in Harrisonburg, says interest rates hit a new low in August. “Interest rates are very low. Refinancing makes more sense for more people now than it has over the last few years. Home values have gone up,” Rogers says.
The housing market in 2020 is stable in the Shenandoah Valley with no repeat of the “horrible times” seen after the bust of 2008, Rogers says. However, the one certainty about 2020 is that nothing is certain. “The question is, how long will it take to get out of coronavirus and what will the impact be? To date, we haven’t seen a significant impact, but we won’t know until we are looking back,” he says.
Although financial advisors have different approaches, they predictably agree on one piece of advice: the need for a licensed financial advisor. “If you partner with the right financial advisor, you have somebody who can hold your hand through the turbulence,” Sene-Reed says. “As soon as you partner with a financial advisor and are serious about your goals, the better off you will be preparing for your retirement.”
No information contained in this article constitutes formal financial advice.
This article originally appeared in the December 2020 issue.
