The equity markets had gotten ahead of themselves over the last couple of months. What I mean is that while the overall economy was still in good shape, the stock market was trading above its expected average growth. So, picture a left to right ascending line that represents the expected growth of the S and P 500 index that is the benchmark the stock market. The actual performance of the stock market had moved above that line significantly. But as we have discussed here and, in my workshops, eventually all reverts to the mean or average. This latest market correction may overshoot the average to the downside, however, in time should come back to meet it. Market analyst have blamed the Corona virus, but I have also heard that the prospect of a Bernie Sanders democrat nomination is also affecting the markets, citing that United healthcare is down more than the S and P 500 index itself. Whatever reason or combination of reasons are responsible, the fact remains that we are due for a pull-back in the equity markets. Recently there have been indications that we were going to correct, such as negative convergence, bond yields at historic lows and the uncertainty of US elections thrown together for a good excuse for a correction.
If you have been positioned properly in the equity and debt markets, using modern portfolio theory, that is using a combination of non to low correlated asset classes to build your portfolios, you need not make drastic changes to your investment mix. If you are in mutual funds from the same fund family or all in stocks, then you will feel some pain. If you don’t need this money for 10 years or more, ride it out and make those changes in the future. If you are inside 5 years of retirement and stuck in limited choice 401k’s or 403b’s then I suggest you consider in- service distribution, that allows you to move money from your plan (most plans allow after 59 and a half) to an IRA while still participating in your plan. Once these assets are in the IRA you should have far more options to structure your plan to work for you! If you are going to need this money for retirement income, then you can do this much more effectively in the IRA. Choices for growth will very likely be broader, cost efficient and more abundant that a typical plan with very limited choices.
401k and 403b plans are good for early accumulation and hopefully some match from employer, but as we approach retirement, the in-service distribution option is, in my opinion, is the most powerful tool you must employ to grow and protect your retirement money. You should also be aware that the “annuity salesmen” are attempting to frighten investors into annuities. While there is a limited use for some annuities, they are not the answer for all your money. A properly structured portfolio will offer more liquidity, growth and income potentially preserving the principal for your heirs. Annuities are insurance products sometimes mixed with mutual funds (variable annuities), that typically have very high fees.
Do your research and vet your advisor!
