By Steven Allender, CRPC®
Not having a retirement plan is like being stuck on the side of the road with only a gas station map and your crazy uncle who swears he knows where he’s going. Odds are you’re not getting to your destination—at least not in one piece. COVID-19 has upended the universe and the economy, but having a plan in place with clearly defined goals can help you stay the course and not make bad emotional decisions.
Long-term goals and benchmarks to measure the state of your financial readiness for retirement can save you the heartache and the stress of feeling every bump in the market. If your benchmark for success is not getting clobbered every time there’s a downturn in the economy, you’ll miss out on the upside of having a strategy in place.
Discovering Your Goals
First, start with laying out your goals. According to a recent survey of affluent advisors by Vanguard, the top household economic concerns were as follows:
• Protecting current level of wealth – 17.2%
• Health of myself or family members – 11.4%
• Planning for retirement – 11.1%
• Cost of healthcare – 8.5%
• Rate of return on the stock market – 7.6% (1)
When planning for retirement, you should set milestones to measure your success. Milestones can be financial goals tied to life events, such as saving for your dream vacation or paying for your grandchild’s education. Instead of keeping an eye on the Dow Jones Industrial Average, keep an eye on your primary goal to keep from straying too far away when there are downturns.
Swinging in and out of markets isn’t a strategy; it’s an emotional reaction that can derail your goals. Keep the long term in view to make momentary dips in the market seem less dire at the moment. Studies have shown that individual equity investors lost out on almost 5% in annual returns over 30 years compared to the benchmark. The average fixed-income investor lost out on 5.5% of annual total returns than comparable bond indices because of erratic and emotional investing.
Only focusing on the short term, known as recency bias, has been studied by behavioral economists. (2) Investors put a large emphasis on recent events, and as a result, their perception skews toward short-term thinking. In our experience, for most investors, the frequent market declines have a far less (and often minimal) impact on long-term goals than it “feels” at the moment.
As the saying goes, “It’s all about time in the markets, not timing the markets.” Hopping in and out because of fear can lead you to miss out on the best days of the market. Based on $10,000 invested in the market in 1980, your portfolio would be up to over $700,000, but missing out on the five best days would leave you with only half of that amount. (3)
A solid long-term strategy is key to surviving the sometimes erratic swings in the market, and holding tight to your goals will help you feel less like the sky is falling. If you don’t have a strategy in place, we at Acute WealthCare, LLC would love to help. Let’s talk about how we can help you think about your long-term goals and put a plan in place to keep you on track. Schedule a 15-minute introductory phone call to get started!
About SteveSteve Allender is a Partner and Wealth Advisor at Acute WealthCare, an independent, fee-based comprehensive financial management firm. Steve is a Chartered Retirement Planning Counselor (CRPC®) who spends his days helping women in the healthcare professions build a secure financial future through investment management and financial planning. Steve loves building long-term relationships with his clients and helping them carry their financial burden so they can focus on what they love and how they want to spend their time. While Steve has officially been in the financial industry for over 20 years, he became hooked on learning about finances as a child when his parents taught him the basics of saving, spending, and giving. Steve enjoys all the outdoor activities living in Colorado provides, and you can often find him backpacking, snowshoeing, rafting, mountain biking, fishing, and exploring old mining communities. His claim to fame is that he is a Colorado Trail thru-hike completer, covering 486 miles of the most beautiful country on earth. Steve also enjoys a good book about Lincoln and the Civil War, and is committed to his community, mentoring through Save Our Youth and helping the elderly and single moms with household maintenance through the Minute Man Ministry. Learn more about Steve by connecting with him on LinkedIn.