It’s the second month of a new year, which means it’s time for everyone to make predictions about what’s in store over the next 10 months. Clearly, it’s impossible to predict the future. However, that doesn’t stop analysts and so-called experts from making their best guess.
As you can imagine, the economic predictions for 2020 are all over the map. Below is a sampling:
● An analyst on TheStreet.com predicted that there would be more volatility, but the major indexes would still be up approximately
● An analyst on nasdaq.com predicted that the indexes would decline in 2020.2
● Goldman Sachs predicts that economic growth will accelerate in 2020 and that the risk of a recession will drop.3
● The Federal Reserve predicts the economy will grow in 2020, but at a slower rate than in 2019.4
That’s just a small selection of “expert” predictions. As you can see, they’re all over the map. What do you do with such conflicting information? How do you prepare for the future if you don’t know what the future will be?
The simple answer is you don’t. You can’t base your strategy or your decisions off short-term predictions because many of those predictions will prove to be incorrect. Of course, that doesn’t mean you shouldn’t plan either. It’s always wise to reassess your strategy and make changes as needed. Below are some tips on how to do that in 2020:
Focus on the long-term.
It’s natural to feel anxious because of negative predictions or volatile financial news. However, it’s always important to remember that downturns may be temporary.
There are two types of market downturns: a correction and a bear market. Corrections are downturns with losses of 10% or more. Bear markets are downturns with losses of 20% or more.
Historically, the average correction has a loss of 13% and lasts only 4 months. On average the market recovers from a correction after 4 months. Bear markets generally last longer and have steeper declines. They have an average loss of 30% and last for 13.2 months. However, the market usually does recover, and does so on average in about 22 months.5
We can’t predict when a bear market will begin or end. That also means we can’t predict when the recovery from a bear market will start. If you take impulsive action because there’s a prediction that the market may trend down, you could miss the bear market, but also the recovery. Or the prediction could be wrong, and you could miss out on continued growth. Instead, focus on the long-term and avoid emotional decisions based on short-term predictions.
Reduce your exposure to risk.
If you’re like many people nearing retirement, you’re not as comfortable with risk as you once were. Many people may become more risk-averse as they approach retirement. After all, you don’t have as much time as you once did to recover from a market loss.
While no one can predict when a downturn may occur, you can take steps to make your strategy aligned with your more conservative risk tolerance. For example, you could shift your strategy to more conservative assets that have less exposure to risk and volatility. You could also utilize retirement income vehicles that offer growth potential with less the chance of downside loss. A financial professional can help you identify strategies that can reduce your risk exposure.
Create an income stream.
Are you approaching retirement? If so, you could take steps today to protect your income from short-term volatility and market downturns. One way to do this is by creating guaranteed* income from your retirement savings.
For example, you could use a fixed indexed annuity to generate income that lasts for life, no matter how long you live. In a fixed indexed annuity, your assets have the potential to earn tax-deferred interest. You can also choose an optional benefit that allows you to withdraw a certain percentage each year. As long as you stay within the withdrawal limits, the income is guaranteed for life, no matter how long you live or how the financial markets perform.
Annuities aren’t right for every situation. They usually have surrender schedules. During the surrender period, you may have limited access to your funds. If liquidity is a priority for you, an annuity may not be the right option. A financial professional can help you determine the best strategy for your needs and goals.
Ready to develop your 2020 investing strategy? Let’s talk about it. Contact us today at MasterPlan Retirement Consultants. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.
*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.
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