22 Jul My husband wants to sell our stocks. I don’t. What should we do?

Q. I’m arguing with my husband who wants to move all our retirement investments out of stocks because of how awful the market is. I say we should stay where we are and let it come back. What should we do?
— Concerned

A. It’s not uncommon for spouses to have a different risk tolerance, especially when the market is down.

Indeed, 2022 was the worst first half start to the year in over 50 years.

You’d have to look all the way back to 1970 to see the market down this much in the first six months of the year, said Matthew DeFelice, a certified financial planner with U.S. Financial Services in Fairfield.

He said it’s natural for investors to have feelings of panic during times of extreme market volatility.

DeFelice said there were multiple factors that contributed to the market declines this year, but it really boils down to one thing – inflation, the likes of which we haven’t seen since the early 1980s.

“You have a global economy that still has not fully recovered from the pandemic combined with supply chain constraints that the Fed thought would ease by now – but in many industries things have gotten worse, not better,” he said. “Demand has simply overwhelmed shippers’ ability to get products to market, resulting in much higher prices. Russia’s attack on Ukraine exacerbated some of those problems, driving up energy and food prices further.”

And it is not just stocks that are feeling the pain, DeFelice said. Bonds are down double digits, too.

After falling behind the curve, the Fed has now been forced to play catch-up in the form of aggressive interest rate hikes, with more to come, he said.

“Bond prices move opposite interest rates – when rates go up bond prices go down,” he said. “Normally when stocks do poorly people flock to bonds as a safety net to weather the storm, but 2022 is one of the few times in recent history that both stocks and bonds are getting hit at the same time.”

The typical 60/40 portfolio is not doing well right now, he said, so it feels like there is nowhere to hide.

“That being said, liquidating stocks or equity funds in a retirement account after a decline like this can be a recipe for disaster,” DeFelice said.

It’s difficult to advise on an appropriate asset allocation without knowing more information about you.
For example – how old are you and your husband, and when do you anticipate you will start taking distributions from your retirement accounts for income?

If the answer is you are still working for the foreseeable future and do not plan on drawing down from your retirement accounts any time soon, then you should sit tight and not make any rash moves, DeFelice said.

“It is always easy to sell investments and get into cash, but the hard part is knowing when to get back in,” he said. “Timing the market on a consistent basis is nearly impossible for professional money managers to do, so the average investor should not expect to be able to do it successfully either.”

Your long-term returns are dramatically affected if you miss the market rebounds when they inevitably occur, he said.

Take this example. If you stayed invested in the S&P 500 from Dec. 31, 2006 through Dec. 31, 2021 — for 15 years — you had an annualized total return of 10.66%. However, if you missed only the 20 best trading days out of the entire 15-year period, your annualized total return drops all the way to 1.59%, he said.

However, if you are already retired or about to retire, it is a different situation, DeFelice said.

“If you plan on drawing down from your retirement accounts within one to two years, you may want to consider reducing risk,” he said. “Even then, liquidating all stock positions during a bear market is usually not the best move to make. Most retirees today need to plan for a 25 to 30 year retirement, so you still need to have some growth in the portfolio.”

So first, you should determine how much you’ll need to live on each year, and then examine income sources like pensions and Social Security to figure out how much you’ll need to withdraw from any retirement or investment accounts you have, he said.

Once you’ve run that analysis you can figure out the right asset allocation that provides for short, intermediate and long-term needs.

DeFelice recommends using a “bucket strategy” for your invested assets.

Bucket 1 is for short-term cash needs over 12 and 24 months and should be be invested conservatively with zero exposure to stocks. Leave that money in cash, money markets or short-term bonds, he said.

Bucket 2 is for intermediate term needs from two to five years in the future. This can have some conservative dividend-paying stocks and longer term bond exposure – think 50/50, he said.

And Bucket 3 for the long-term, five years or more, and could have most of your growth assets – maybe 70/30 stocks/bonds, he said.

“If you get that part right and know any immediate/short term cash needs are covered with your conservative money, it becomes much easier to weather the storm and not panic into selling stocks at the wrong time,” DeFelice said. “It should go a long way taking the emotion out of your investment decisions.”

Ultimately, the appropriate asset allocation depends on your individual circumstances, so DeFelice recommends you meet with a financial planner who can run some projections for you. This person may come in especially handy if you and your husband aren’t in agreement.

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This story was originally published on July 21, 2022.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.