Richard W. Paul/Kiplinger Consumer News Service

The dot.com crash in 2000.  The 9/11 terrorist attacks in 2001.  The collapse of the housing market in 2008.  And now the coronavirus pandemic of 2020.  Over the past two decades these events—which had huge financial repercussions—have all been labeled as “black swans.”  Can you draw comfort from the thought that each of these crises was considered so random, so rare and so difficult to predict that no one saw them coming?  Investors, there is always something coming!

1. Investors are lulled into complacency by long periods of low volatility.  It’s hard to blame investors for wanting to squeeze just a little more juice out of an 11-year bull market, but you have to know when to say when.  The S&P 500 experienced declines of at least 10% several times during the past decade. Not a big deal for younger investors with plenty of time to bounce back from a big loss, but for the pre-retirees and retirees who ignored those gentle reminders to rebalance their portfolios or transition to something safer, got a nasty wake-up call in February and March.
2. Investors are trying to time the market. Trying to predict the market’s movements is best left to the professionals. An adviser who is looking out for your best interests will tell you that sticking to a plan based on your goals, your time horizon and your individual tolerance is a better way to go.
3. Investors are taking on too much or too little risk.  If there is enough guaranteed income in your plan to cover your expenses  in retirement, why not reduce the amount of equity in the portfolio to a more appropriate amount—enough to keep up with inflation, but not so much that it makes you nervous every time the market drops a bit. On the flipside, some retirees feel safer keeping all or most of their nest egg in low risk, but low interest cash equivalents.  This can jeopardize your long-range retirement plans.  Inflation can  eat away at your savings so slowly you may not notice, but if you expect to have a 20-, 30- or  even 40-year retirement, it is crucial to protect your buying power.
4. Investors are not truly diversified. Portfolio diversification—allocating money across many asset classes, geographical regions and sectors—can help with avoiding disaster in a downturn.  Many investors believe keeping their money in two or more mutual funds solves that problem, but they aren’t necessarily getting the diversification they need if those funds hold the same or similar stocks.  Your advisor can audit your investments to avoid overlap and to make sure you are not overly allocated to any one thing.
5. Investors are ignoring the impact of future taxes.  There is no time like the present to sit down and do some tax planning—whether it is to help your future self, your spouse, or your children.  If we cycle back to a higher-tax scenario, you won’t regret moving some money to a tax-free Roth IRA.  Think of it as another step in your effort to reduce overall risk.
6. Investors are more worried about their gains than managing risk.  Investors are trained to focus on accumulating as much money as they can for retirement.  But when you are near the finish, accumulation should cede the spotlight to preservation.  That would mean moving away from risky investments that are vulnerable to the market’s unpredictable movements and toward a distribution plan that is focused on establishing enough reliable income to cover your monthly bills.  If your Social Security ad pension payments won’t be enough, you’ll likely have to fill the gap with withdrawals from your savings.
7. Investors are putting off getting professional advice. You can keep dumping money into a 401(k) or IRA and hope for the best or do some DIY trading and see how it goes. Or you can work with a financial advisor to build a person, long-term plan that will help you achieve your retirement goals

Retirement planning is not about predicting the unknown—it is about preparing for it.  And that means putting together a comfortable, comprehensive plan you can stick with regardless of what happens next in the stock market. For questions or concerns regarding your portfolio, contact Brien L. Smith, CFP® at Traditions Wealth Advisors [email protected] or 979-694-9100.