Why the Stock Market is Not Your Biggest Concern.

Have you been watching the stock market? Have you been watching it tank? Got you worried about your retirement accounts?

The Dow Jones Industrial Average (Dow) is a commonly used market benchmark made from 30 large companies. It was near 29,551 before the pandemic. At it’s low during the pandemic, it dropped to about 18,592. That’s roughly a 37% drop. The Dow today is at 21,052, still a 29% drop from pre-pandemic levels.

My Individual Retirement Account (IRA) funds have dropped 24% since the new year. Ouch. I bet yours is similar.

Here’s why none of this is your biggest concern, depending on which of the following three categories you belong.

Category 1 – You are more than two years from retirement.

This category covers almost everyone reading these words. Most of us have been saving for our retirement for years, but are still years away from actually retiring, aka drawing funds from your IRAs.

An IRA fund is not a savings account. A savings account is your actual money, held in trust by a bank. An IRA, on the other hand, is an accounting of investments.

Consider baseball cards. You buy baseball cards on the cheap, in foil packs that have gum in them. When a rookie player becomes a star, that card becomes much more valuable. That doesn’t make it money. You can’t go into a store and buy groceries with a baseball card. At some point, preferably when the value of that card is high, you sell the card for actual money. Until then, it’s just cardboard. It’s value fluctuates from year to year, but it is not money.

Your IRA’s are mostly mutual funds, which are mostly stocks of other companies. Your IRA’s are really just a bowl full of receipts showing your ownership of really tiny parts of most of the world’s best companies. IRA’s are not money, they’re an accounting of ownership. They’re cardboard cards with company names on them. They’re companyball cards.

The best way to track the cumulative value of all those bits of companies is to assign them a dollar value at any given time. That’s what you see on your IRA statements and when you log on to your 401k website. But that doesn’t make it money. Your IRA accounts are not money.

That’s my point. Today’s value is lower, but you own just as many shares as before. When, not if, that value goes back up, your IRA report will look just as good, or better, then it did before. And your bowl of companyball cards will be just as, or more, full. It was always full. It’s just the value of the cards that fluctuated.

Now is a terrible time to bail out. That’s buying high and selling low. Rather, it’s the other way around. In fact, now is a great time to buy! All those stocks are on sale!

So hold the course. This blip will mean no more to your final outcome than the 2001 or 2008 recessions now mean to mine.

Category 2 – You are already retired.

Most of my readers are in category 1. Most of the rest are in category 2. If you are already retired and drawing from your IRA’s, then here’s why you can stay the course.

You and your financial consultant have a plan to draw responsibly from your IRA’s so that they will last your remaining years and more. That plan usually involves a planned average annual rate of return, usually at about 8%, and a planned withdrawal rate, usually about 4%. So, if you draw 4% and it grows at 8%, then you leave 4% in your account every year. That covers about 2% inflation and 2% in contingency to uncertainties.

Wouldn’t you call today’s market behavior an uncertainty?

That said, this is a huge dip in the market values. It won’t last forever, but will that 2% contingency cover the duration and magnitude of this dip?

This is where your financial consultant can help. Talk to him or her to see if you need to tweak the plan a bit.

Category 3 – You are within a year or two of retirement.

For this small group of people, this seems neither a non-issue or a tweak. This seems like a potential plan-changer.

When you’re approaching retirement, you’re starting to watch the value of your IRA’s closely. Getting out when the market is low seems like a bad idea. You should get out when the market is high to fully leverage all those hard-earned dollars.

Here’s the thing. You’re not going to take all your money out on the first day. You don’t have just one companyball card, you have a bowlful. You’re going to take out just what you need. The rest will stay in the mutual funds and continue to fluctuate and generally grow.

That puts you, financially, in the same category as the already-retired.

Talk to your financial consultant. You may need to adjust your plans during this first important year of retirement. If you plan to spend some money (for travel, etc.), you may want to postpone for a year. The virus will probably change your plans, regardless of the market.

Big Concerns

These are all big concerns. This all concerns your ability to retire with dignity, leave a legacy, and pursue your American Dream. I’m not downplaying these concerns.

I’m saying it’ll be okay, and that these aren’t your biggest concerns.

Your biggest concerns are your God, your family, your neighbors, and your community.

Your God will be just fine. Lean on him.

Your family, neighbors, and community are all impacted by your actions right now. This pandemic is a terrible threat. Fear of that threat is everywhere, but I encourage you: don’t let it distract you from what is truly important. These people are your biggest concern.

I know this sounds preachy, and I apologize for that. I hear too many people panicking. Just because the market is tanking doesn’t mean your retirement is.

Knowledge allows belief. Belief builds hope. Hope defeats fear.

Bob<