Cashay logo

Empowering your money

Retirement savings: What to do when stocks are in turmoil

Dhara Singh
Reporter

As anxieties over coronavirus grow, sending the stock markets spiraling down, financial planners nationwide are offering key advice during this tumultuous time to worried retirement savers and investors.

“It’s like if we were flying at 30,000 feet and then suddenly dropped,” said David Mullins, certified financial planner at David Mullins Wealth Management Group. “Clients are unnerved because we’ve gone so long without any downside.”

The Standard & Poor’s 500 index dropped 9.51% on Thursday, falling into a bear market, something investors haven’t seen in 11 years. The Dow Jones Industrial Average plummeted 9.99%, the biggest one-day percentage loss since 1987.

Traders work on the floor at the opening bell of the Dow Industrial Average at the New York Stock Exchange on March 12, 2020 in New York. - Wall Street stocks were deep in the red early Thursday, resuming after a 15-minute suspension as the economic pain from the coronavirus deepens and widens. About 25 minutes into trading, the Dow Jones Industrial Average was at 21,505.07, down more than 2,000 points or 8.7 percent. (Photo by Bryan R. Smith / AFP) (Photo by BRYAN R. SMITH/AFP via Getty Images)
Traders work on the floor at the opening bell of the Dow Industrial Average at the New York Stock Exchange on March 12, 2020 in New York. (Photo: BRYAN R. SMITH/AFP via Getty Images)

The biggest piece of advice from financial pros is don’t panic and sell.

“If you take money out while the market is correcting, you’ve ruined your chances of a real good retirement,” said Charles Failla, principal at Sovereign Financial Group. Instead, investors should consider adding more to their investments at deeply discounted prices if they’re able.

Read more: Bull and bear markets: Everything you need to know

“You can’t time the bottoms,” Failla said, “but if you buy today it [could] be a better price than three weeks ago.”

Here are three strategies to consider during a market sell-off.

Consider a Roth conversion

For younger people in lower tax brackets, consider converting your 401k and IRAs, which are funded by pre-tax earnings, into a Roth IRA. You still take advantage of investing when stock prices are down, but you also get to withdraw these funds and their earnings tax-free later on in life when you’re in a higher tax bracket.

Read more: Roth IRAs: Everything you need to know

“If they want to take some of that pre-tax money and roll it over when the market is down then the amount of taxes they’ll pay will be lower as well,” said Laurie Allen, founder at LA Wealth Management. “It’ll be tax-free growth going forward.”

Mixed group of millennial aged friends discuss investing and cryptocurrency trading at a cafe
Younger people may want to consider a Roth conversion if they are in low tax brackets, said one expert. (Photo: Getty Creative)

This year, the contribution limits for a Roth IRA are $6,000, but those 50 and older can put in up to $7,000 higher. These plans are meant for those individuals whose adjusted gross income doesn’t exceed $124,000. If you’re married and file taxes jointly that amount increases to $196,000.

Multiple portfolios

A more rather unconventional strategy is to have more than one portfolio to help you through these gut-wrenching swoons, Failla said.

Read more: How to construct a portfolio: A full breakdown

Each portfolio is allocated based on a different time horizon such as between one and five years, between five and 10 years, and more than 10 years. The portfolio with the shortest time horizons would have safer investments such as bonds and cash.

“It helps [investors] do the right thing with their long-term portfolio,” he said, “as opposed to panicking and pulling out.”

Consider investments you passed up

A sell-off can be a savvy time to look into buying investments you don’t already own.

“For a lot of clients, it gives us an opportunity to go find high-quality, dividend paying stocks and mutual funds,” said Mullins. “Companies that are selling 20% to 50% less than a month ago, it will be a great opportunity to buy.”

Read more information and tips in our Stocks section

Read more personal finance information, news, and tips on Cashay

Follow Cashay on Instagram, Twitter, and Facebook