The year 2020 has certainly packed a punch. Most people are still reeling with the threat of the coronavirus. Dramatic drops in the stock market, business closures and high unemployment are just a few factors contributing to the evolving financial fallout of the pandemic.
The truth is, where we are and where we are heading is still unknown. It may be 18 months, 2 years, or even longer before we are able to get back to where we were before COVID-19.
JP Maroney, founder of Harbor City Capital, a global alternative investment group specializing in buying, building and monetizing digital assets, is always reviewing ways to help investors achieve safe, high yield returns in this and every other environment.
Here, JP Maroney of Harbor City Capital reviews ways to maintain your portfolio and improve your financial future during these uncertain times.
Don’t Make Investment Changes in Panic
Historically, periodic market volatility and bear markets are a normal part of investing. While the markets may temporarily dip, they tend to trend upward over time. Maroney reminds investors that, even during “up” years, the stock market still experiences volatility. Investors who are in their 20s, 30s and 40s should maintain a well-diversified portfolio, holding large, mid, small, domestic and international, investments in a range of sectors.
Keep Age in Mind
Speaking of age, it’s natural for people nearing retirement to not want to risk adding more money to an already volatile market. For the older population, now is the time to look at asset allocation and make sure to have enough fixed income and bond exposure. If you’re a younger person with a 401K, it’s a different mindset. “If you are younger and have some time on your side, then that can definitely play into your favor,” suggests Maroney.
Don’t Obsess Over Looking at Your Portfolio
At the start of the coronavirus pandemic, some investors were looking at their 401K accounts and noticing a significant drop in funds — sometimes thousands of dollars were gone in a matter of days. No matter what the market is doing, long-term investors are best served by not looking at their portfolios too often. Maroney explains that it is common for the stock market to frequently change throughout the day, and over checking your portfolio can trigger your emotions and impact your decision making.
Consider Tapping Retirement Accounts to Create Investment Income
Under normal circumstances, it’s not a good idea to cash out of your 401K early. However, due to the current health crisis, the United States government has enacted the CARES Act which waives the 10% early withdrawal penalty and 20% withholding for coronavirus related distributions of up to $100,000 across all qualified retirement plans (check for eligibility). Distributions will be subject to taxation and you will have the option to pay taxes due over a three-year period.
Simply put, if you need to withdraw money from your retirement account because of financial hardship and can do so via the CARES Act to avoid penalties, it is OK. However, Maroney warns: “People should avoid using their retirement funds for expenses if possible. Instead invest for income in order to preserve principal balances while generating income to pay toward expenses.”
The takeaway here is don’t panic and make investment or other important money decisions based on your impulses. Research your options, check into the CARES Act, and consult with a financial expert if you are concerned about your financial future.