Should I exit the markets now to stave off further stock falls?

Question: I am 55 years old and have invested a significant portion of my retirement savings in a stock portfolio over the past 15 years. This year my annual return was negative given the volatility in the markets. I had hoped to retire in ten years, so I worry that I will lose more of the savings I had set aside for retirement. Should I cash out now? Billy, Cork City

Answers: Historically, investing in a diversified portfolio of stocks has produced the best returns over a long period of time. Since 1928, the US stock market has seen short-term declines averaging 15 percent each year. However, annualized returns averaged 11 percent over the same period. In short, volatility is normal. And it’s the cost of investment growth.

The greater risk to stock investment returns was not from being in the market during these negative periods, but from being out of the market during the much more frequent positive periods. Time in the markets, not timing of the markets, is the message here.

Since the global financial crisis, investors have had a much better understanding of both the risk and volatility of investment returns, particularly equity investments. Consultants have also seen the benefit of educating their clients in this area as it provides a better outcome for everyone. Your question is a good indicator of the benefit of having a good advisor, reminding you of the long-term goal of your investment.

To focus on your own situation, you have determined that you want to retire in ten years. Cashing out your stock position in a big way now while trying to time a re-entry would not be a good practice. It would be much more beneficial to identify the income you think you will need in retirement. Will you be in debt? Will you have dependents? What income do you need to finance your planned retirement?

Really focus on your own planning and maximize tax efficiency and contributions within your budget. As you approach your target retirement age, you can systematically trim your stock portfolio into less volatile assets.

How can I protect my income if I am ill with Covid for a long time and cannot work?

Question: I am a 45-year-old self-employed consultant and was unemployed for two weeks earlier this year after falling ill with Covid-19. Since then I’ve worried that if I ever had Covid for a long time I wouldn’t be well enough to continue working. How can I secure myself financially to maintain my lifestyle in the event of illness? I have 10 years left on my mortgage. Eileen, County Galway

Answers: Unfortunately, this has become a real problem for many people lately.

Often – though not always – workers on the front lines of the pandemic, such as B. Hospital staff, have enough benefits from their employment to ensure that part of their income is paid when they are unable to work due to Covid-19. This type of security is less common in the private sector and for self-employed people like you it is your responsibility to procure this benefit.

People have realized how precarious their situation can be when they are unable to work. The mindset “that never happens to me” has been replaced by “it can happen”. Small business owners and sole traders simply cannot take these risks. Businesses can really be impacted when key employees – or even individual employees – are absent. Contracts can be lost and businesses can collapse.

However, the more far-reaching and longer-lasting effects can often be the loss of lifestyle and its knock-on effects on loved ones. In short, you need to protect your income. Tax reductions apply to premiums at your marginal rate and there are excellent products out there, especially for your profession.

It’s worth noting that income payments usually start after an initial waiting period, so I’d recommend building an emergency fund to cover that time. The benefits may only cover a certain part of your income, so in the worst case you would need further savings to supplement your income.

Implementing these steps would be good financial planning and would ensure you could maintain your lifestyle when unable to work.

https://www.independent.ie/business/personal-finance/should-i-cash-out-of-the-markets-now-to-stave-off-further-equity-losses-41957507.html Should I exit the markets now to stave off further stock falls?

Fry Electronics Team

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