I have been guilty of making an abundance of wrong turns in my life. Duh! I am, after all, a man. You are well acquainted with the stereotype, men do not ask for directions, we crank the car and we DRIVE! Thankfully I have never made a wrong turn like the one depicted in the image above, or one driver’s missed turn recorded on Youtube here. It is well-nigh impossible to eliminate all wrong turns from our lives. Many have discovered that using the latest mapping APPs available for smartphones will not prevent making wrong turns.
Many have made (or thought they made) financial wrong turns in 2020, prior to and following the COVID-19 roller coaster. Continuing market volatility, and the economic shakeout from a protracted opening of the economy, has people losing sleep over their ability to meet current expenses, their retirement plans, and their ability to cover future education costs.
The record shows people have responded by withdrawing approximately $150 billion in cash from exchange traded index funds and managed equity funds. This exodus, tracked by both the Investment Company Institute and Morningstar, was initiated almost entirely by individual investors in their 401(k) and similar retirement accounts.
Such a precipitous reaction is understandable. Equities had fallen by approximately 40% in less than a month, and there was a looming undefinable factor of the length of the economic shutdown. Many may conclude the best decision would be to “sell and go away.” In contrast, a Fidelity spokesman recently told ThinkAdvisor a survey of the complete data revealed, “Less than 1 in 10 retirees made a change to the allocation within their retirement accounts.” Another data tab showed less than 1 in 10 of those nearing retirement (Baby Boomers) made any change to their asset allocation. The majority of those making sudden, drastic financial moves were the furthest from retirement, with the longest period of time to recover.
Now, the markets have recovered more than one half their value from the lows. Many are predicting a continuing recovery, albeit on a volatile path upward. Thus, those who made larger shifts away from the markets are left to wonder, “How can I best get my retirement back onto the plan I had before all this happened?”
As we pictured earlier, just as sudden driving moves to correct a wrong turn can create chaos, sudden financial U-turns seldom produce positive results. Anyone who made a decision to significantly shift assets away from equities into cash should commit to a stepped process of moving funds back into equities. One plan may be to divide the funds moved into cash by twelve, moving back into equities over one year. This stepped approach would allow someone to take advantage of volatile price swings, averaging purchase prices over time.
We all make wrong turns! Attempting to correct one error with any sudden move, exposes us to danger. Here is to thinking clearly, acting decisively, and living financially free. Never stop pursuing our passions…in every stage of life.