How Should You Handle Your Retirement Savings And Investments During COVID-19?

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As the COVID-19 (also known as coronavirus) sweeps across the country, the value of your 401(k), stock market portfolio or IRA might be plummeting. What should you do?

Financial advisors have simple advice: Stay calm. And whatever you do, don’t pull your money out of your investments when those savings vehicles are at a low point.

Gerry Frigon, president and chief investment officer of San Luis Obispo, California-based Taylor Frigon Capital Management, says withdrawing your savings now could lead to financial pain later.

"Don't panic and liquidate long-term investments," Frigon says. "This kind of thinking is dangerous, because when the market turns it happens so rapidly, it is shocking. The more the market recovers, the more difficult it becomes emotionally for those who got out to buy back in, often resulting in tremendous losses for those who panic-sold near the lows."

Frigon isn’t alone in this advice. Financial advisors across the country are preaching patience today. It’s tempting to make emotional decisions as the news surrounding COVID-19 seems to grow worse daily, but the best move is to resist this temptation.

Jim Kirk, financial advisor with Erie, Colorado-based Rocky Mountain Financial Solutions, says investors should not panic. That means that this is not the time to withdraw all your money from the stock market or your 401(k).

It makes little financial sense to take money out of your retirement accounts or the stock market after these investment and savings vehicles have lost such a significant amount of value. Instead, you should ride out the down period, especially if you're not near retirement age, and wait for these investments to regain value.

If you don't, you'll end up losing a good portion of your nest egg.

"Staying with your investment or financial plan is like wearing a life vest on a boat," Kirk says. "If the boat is sinking or the markets are reeling, the last thing you want to do is throw your life vest away from you. Keep your vest on. Stick to your plan. Take a deep breath and remember, the stock market has recovered from every previous downturn and recession."

Nicole Middendorf, chief executive officer of Minnetonka, Minnesota-based Prosperwell Financial, says investors should stick with their long-term plans even if the value of their portfolio is plummeting because of COVID-19.

Making emotional decisions could lead to a loss of plenty of money. And she recommends that investors show patience today. Reallocating the dollars in their mutual funds today can cost them in the future.

"Don't reallocate when things are way down," Middendorf says. "It's never best to buy high and sell low. Best to buy low and sell high."

When the stock market drops, it’s an opportunity for investors. It’s a good time to invest in more stocks for less dollars.

Bob Gustafson, a certified financial planner with Triton Financial Group in Marlborough, Massachusetts, says that investors who are younger and further from retirement age should invest more in the stock market and maximize their investments in their 401(k) plans or IRAs.

Why? Because stocks are cheap today thanks to the economic slowdown caused by the COVID-19 situation.

"If you don't do this, you will look back 10 years from now and say, 'I wish I had put more money in stocks,'" Gustafson says. "If you have ample time before retirement, don't worry about the current slump. Invest more and reap the rewards when the stock market recovers."

But what if you must pull money from your investments now? What if you’re on the verge of retirement?

That's a difficult situation without any easy answers. Gustafson says that if you have no choice but to pull money out of your investment vehicles, you should at least leave some money and reallocate it to a more aggressive mix of stocks. This way, when the market does improve, you'll get a higher rate of return.

"That is a tough spot to be in," Gustafson says. "If you are there, that is really the only technique that you can utilize."

Kirk agrees that the stock market today is providing opportunities for long-term investors to take advantage of lower prices. Taking money out of the stock market, your IRA or your 401(k) plan today if you absolutely don’t have to would be a financial misstep, he said.

And for those near retirement who need money? Kirk recommends that they consider withdrawing dollars from a different account such as their savings or checking accounts.

Kirk recommends, too, that you not change the way your dollars are allocated in your mutual funds just because of the COVID-19 situation and its impact on the economy. That's because your long-term investing philosophy should not change due to short-term economic upheaval.

"Mutual fund allocation has nothing to do with recent events and everything to do with risk tolerance," Kirk says.

What does this mean? If you were comfortable with a high-risk investment strategy before the full extent of COVID-19 became known, you should stick with your current allocation. As Kirk says, the eventual rally can potentially provide financial rewards in the future.

"If the investor changes allocation to a more conservative investment approach, they forego the potential higher returns they would have achieved with their original allocation," Kirk says.

For more resources like this one, check out our personal finances learning center, as well as our latest article on protecting your 401(k) investments during COVID-19.