How to Recover from a Market Crash if You're Retired
When an economic upset occurs, the question becomes: what should you be doing next? Below are four things you can do to help recover from a market crash.
#1: Review Your Financial Plan
Many of us are emotional about our money, and we can’t help it. That’s why working with an advisor who can offer an objective, logical approach to money management is often a necessary component in reaching our financial goals.
Watching the market crash, or seeing our stocks drop overnight, can cause panic - and understandably so. The first thing to do when faced head-on with a market downturn is to pause, take a breath and review the financial plan you and your advisor already have set in place.
Oftentimes, advisors develop financial plans or investment strategies that prepare for the unexpected - whether it’s a market downturn, death in the family, loss of a job, etc. Turning to your advisor and reviewing your plan amidst a market crash can be a comforting first step in remembering not all is lost. Doing so can serve as a reminder that now is not the time to make hasty, emotionally-driven decisions. Rather, now is the time to focus on your personal economy and what you can do to rebuild or reallocate what you need throughout retirement.
#2: Decide Whether or Not to Continue Investing
You’ll likely want to talk with your advisor about whether or not continuing to invest in the market is in your retirement’s best interest. Pulling out now may be your first instinct, but your advisor very well may advise against it. That’s because, depending on your circumstances, jumping ship too early could prevent you from recouping any losses, should the market change.
While history is no guarantee of future performance, historically bear markets do recover. If you have the flexibility (and years) to do so, you may be advised to ride the downward trend out in hopes that you can recoup your losses when the market eventually stabilizes and begins to add gains. Again, this decision is one that should be made with a trusted financial partner, and in tandem with the rest of your retirement income strategy.
#3: Rebalance And Reassess Your Risk
A market crash can serve as a true indication of your risk tolerance, meaning this could be an ideal opportunity to reassess your personal tolerance for risk. If you’re allocating assets in a similar manner as you were while working full-time, for example, you may find that rebalancing your portfolio is well past due.
Alongside your financial advisor, look closely at your portfolio, specifically at the balance between stocks and bonds. At a time like this, it may be tempting to change your asset allocation in favor of more fixed income. And while that may be the right option, you want to be logical and confident in this decision, as removing risk altogether could mean missing out on crucial returns later down the line. As is true for most portfolios, yours is likely to contain a mix of fixed income and stocks.
#4: Adjust Your Budget
You can’t control the market, but you can control other aspects of your financial life - including your spending and saving strategies. If you need to, take a look at your weekly or monthly budget and see where adjustments can be made. You don’t want to pull from your investments and/or sell your assets if minor lifestyle changes will suffice. Whether that means eating out less or reducing the number of trips you budget for each year, evaluate ways in which you can reallocate “fun” money to cover necessities. And as you do, remember to include contributing to your savings account or emergency fund as a top priority.
When a market crash occurs, it can feel like the future of your finances is out of your control. But with a financial partner by your side, these steps can provide both a well-thought-out plan and peace of mind for your retirement. Consider our team, California Retirement Advisors, as your financial partner. Feel free to contact us at cradvisors.com or call at 888-643-7472 to request a meeting with one of our licensed advisors.
By Christian Cordoba
CERTIFIED FINANCIAL PLANNER™
Founder, California Retirement Advisors
Investment advisory services offered through Mutual Advisors, LLC DBA California Retirement Advisors, a SEC registered investment adviser. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies. CA Insurance license #0B09076. This content is developed from sources believed to be providing accurate information and provided by California Retirement Advisors. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. California Retirement Advisors, nor any of its members, are tax accountants or legal attorneys and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional.