Wall Street disruption keeps financial planner phones chirping as 401(k)holders see retirement account balances falling with the stock market they tie. Most often they are told to sit tight and breathe through it.
“We’re looking forward to seeing you in the future,” said Jude Bouleau, senior financial planner at Planning Centre, a New Orleans-based company. He added that he has been particularly busy this week. “People are really worried.”
Vanese Pitts said she saw her husband, 401(k) flow $8,000 on Monday. The recent sharp recession has remained around 4.8% lower than where the stock index began the year, following weeks of losses on Wall Street. Many 401(k) follow closely a wide range of S&Ps.
“It was just sane,” the 41-year-old, who raises two children, her husband, a software engineer in Birmingham, Alabama.
Pitts was one of those who contacted social media platforms this week to crowdsource advice and commiserate as President Donald Trump shook the trade war with America’s closest allies through retirement investments of millions of savers. His chaotic development of his new tariffs, the retaliation they caused, and the continued clean-up of federal workers, sparked fears of inflation rebound and potential economic downturns.
Lee Baker, founder and president of Claris Financial Advisors in Atlanta, said he had been submitting uneasy calls from clients over the past week or so (an uneasy call from clients who are leaving or nearby). He said, “I was surprised to hear so many concerns from people who don’t really have any problems with making it, whatever this is,” he said.
I have seen more concerns and fears about clients I spoke to last month or so than ever since the financial crisis.
Jude Bowdrow, Planning Center in New Orleans
“Clients don’t want to hear, especially in times like these. They essentially don’t do anything. That’s alright,” Baker said.
That was the point of Katie Sicman’s mother’s advice when the 23-year-old Philadelphian paniced. She contributed 6% of her salary for just two years to her employer’s 403(b) (retirement accounts provided by public schools and charities), and in just two years she saw over $1,000 disappear in a few days.
“My mother said, ‘Don’t touch it,” said Sicman, who works in marketing for a local nonprofit organization. “Everyone said you’re making sure you’re investing in your retirement, so it was the first thing I did after getting your first job outside of college. I can’t say I was surprised. I feel a bit disappointed.”
Szykman said he found some comfort by knowing that the recent decades had seen a recession and “people have come out of it.” Still, she said, “There was no need to do this,” especially.
“When groceries are so expensive, you just need to cut that money a little and make a little sacrifice,” she added.
Many retirement savers have forgotten the advice of Sixman’s mother. Empower, a financial company that manages retirement plans for around 19 million investors, told CNBC on Wednesday that some account holders are increasingly moving their funds towards safer investments. The company emphasized that “despite the recession, there has been no widespread surrender.”
According to the Alight Solutions 401(K) index, activity accounts for a small amount of overall balance, but trading on the 401(k)S has doubled over the past three weeks, cutting savers’ money from funds linked to large corporation stocks. Low-risk investments, including government bonds, money market accounts and so-called stable value funds, have swelled over the same period.
Financial planners generally encourage clients to think carefully before adjusting their 401(k), but changing the composition of their account’s portfolio is very different from early withdrawal of funds that involve paying a penalty.
From an investment perspective, Baker said anyone looking to build a cushion in their portfolio can look to tips, or Treasury’s inflation-protected securities. According to Morningstar, hint funds have averaged 3.4% so far this year, making it the top-performing bond fund category.
He also pointed to recent intakes in “buffer products” like the S&P 500 tracked exchange trading fund. But Baker warned that investors moving in that direction should be comfortable missing out on potential profits. If the market was reversed and tied up high, he said, “Don’t forget I had this conversation because I was afraid at this moment.”
Some planners also advised that they have a good combination of international funds in their portfolios.
Samuel Dean, founder and president of RORA Wealth in Atlanta, previously said, “the international (subsidy) was something you had to apologise.” However, he said some ETFs that rule out US stocks are working very well.
Boudreaux agreed, noting that the revenues of many international companies are heavily related to the US market, limiting the potential attractiveness of foreign stocks.
“It’s a very globally connected world, and that applies to our investments,” he said.
Clients don’t want to hear “essentially do nothing” especially in these times. It’ll be okay. ”
Lee Baker, Clarice Financial Advisor, Atlanta
The planner also said it would be okay to take a more conservative approach to helping out in the future, rather than touching on what is already there.
“People are tightening,” said Kevin Mahoney, founder of Ilmint, a Washington, D.C.-based company. “So there’s uncertainty about savings expenditures and investments. It’s not about existing investments, but on potential investments that they might have planned.”
It’s also a better time for investors to focus on cash flow than other investors than retirees, Boudreaux said.
“I like having a good cash reserve for clients to head to retirement,” he said. “When you sell from your portfolio, you’re more selective and you don’t have to sell monthly if you’re heading for a recession.”
“The goal of any of these is to respond and not respond,” he added.
It was difficult for Pitts to “just keep it up and want the best,” she said she and her husband hadn’t touched on their retirement fund. Instead, they are thinking of getting a financial advisor to help them protect their savings.
“Every day it’s different,” Pitts said. “It’s not good.”