The mainstream media has been filled this week with a variety of financial experts doling out advice to a population generally terrified about what the coronavirus pandemic is doing to their 401(k).
You’ll find some common themes among this quick roundup of comments that caught our eyes in the past few days.
- Chris Burns, CEO of Dynamic Money on “Fox & Friends” March 19
Chris Burns, a financial planner and the CEO of Dynamic Money who is also a radio talk show host, encouraged people to avoid selling if possible and keep contributing to their 401(k)s.
“Conventional wisdom says the best thing to do is to just keep contributing to your 401(k) and not to touch it,” he said on the program, adding that you should only do that if “you’re in a place where you have a lot of liquidity right now, where you have a lot of money sitting in the bank.”
He then noted that U.S. equity markets are “about 30% down right now” and compared stopping contributions to your 401(k) to selling a home.
“Could you imagine selling your home if it was worth 30% less? You would want to wait,” Burns said. “On the flip side, if you’re making contributions to it, you’re getting this incredible discount on those contributions and over time that pays off.”
- Kelly Lannan, Fidelity Investments, on The Denver Channel March 19
“A lot of people are scared. They don’t quite know what they are seeing, especially the average investor who is not following day to day.”
Fidelity is advising the best move right now may be no move at all. Referencing social media posts with the phase “don’t touch your face, don’t touch your 401(k),” Lannan explains most investors shouldn’t panic and divest their stocks during the economic downturn during the COVID-19 pandemic.
“The most important thing to say, and I know this is really hard to hear, is not to panic. This is a part of life, and the important thing to note, as we saw in 2008, is these downturns are usually followed by a recovery.”
- Robert Stammers, Charter Financial Analyst Institute, on The Denver Channel March 19
“We know from behavioral finance that people make really, really bad decisions when they panic. If they do sell, they’re going to be selling in a bad market. They’re basically going to be doing what people tell you not to do, which is sell low and buy high, when the market comes back.”
The story goes on to note that historically, the market always rebounds. In 2008, it took five years, and in 2015 the market bounced back in about 13 months. Stammer pointed out, even with major downswings, over time, those who stay invested still see an annual 8% to 9% return on average.
“People did not think we’re going to get through the 2008 crisis. More than 60% said, ‘that’s it, this is never coming back, it is never going to be like this again.’ Then, after it did come back, the return on the market was like 17%.”
- Peter Palion, CFP, on Reuters March 19
When you see soda on sale at the supermarket, do you run screaming into the parking lot in a panic? Or do you buy six?
This is the analogy Peter Palion, a Certified Financial Planner in New York, uses to calm worried clients about volatility in the stock market and keep them on their slow and steady retirement savings path.
While logical, it is a hard sell for many. As the market drops precipitously, it may seem like you are throwing good money after bad to keep contributing a percentage of your income to a 401(k) or a similar workplace retirement plan when you have an urgent need for cash. But as we learned from the recession in 2008-2009, stopping regular contributions and pulling out of stocks left investors further behind than those who stayed the course.
“If you’re still getting a paycheck, what’s the point of stopping contributions to get a little more cash? It’s not like your cost of living is going up—your mortgage and utilities, are, for the most part, still very close to amount you paid last month,” Palion said.
- Dr. Christopher Thornberg of Beacon Economics on NBC Los Angeles March 17
If you are looking at your individual retirement or 401(k) accounts as the coronavirus pandemic continues, you’ve likely lost thousands of dollars and the panic for you is real.
Dr. Christopher Thornberg of Beacon Economics says everyone should take a deep breath.
The stock market isn’t the end-all, be-all of our economy and considering what’s happened with this global pandemic, what’s happening is normal, he said. Thornberg said the markets don’t like uncertainty and generally respond negatively during a crisis.
The sights of people hoarding at grocery stores, business closures and layoffs have combined to create chaos in the markets, but Thornberg says it may only be temporary.
If the coronavirus is contained and we have a better idea of how many people are infected over the next few weeks, we’ll see confidence come back and the markets will reflect that, he said.
Right now he says take a break from looking at your investments even if you are near retirement. Don’t start moving around money or withdrawing cash because the stock market can correct itself just as fast as it posts losses, and despite some record losses of late, we’re not on the brink of a recession, he said.
“The idea that this necessarily is going to lead into a U.S. recession is, at best, over the top. We are not going into a recession right now,” Thornberg said. “Sit still. If you sell in a panic and then buy in the upturn you are guaranteed to lose money.”
- Teresa Ghilarducci, Reuters, March 20
Per the Reuters article, Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at the New York School for Social Research, offered this advice to people now: Act like a rich person.
“People with assets have slower long-term thinking because of their economic position, and at times like this, they make out like bandits,” she said.
So if you change your thinking from panic to thinking two years from now, you can go out and buy those bargains.
“Don’t use your rollover check for cornflakes. Use it to buy assets,” Ghilarducci said.
SEE ALSO: