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Key Investment Moves For Those In Their 40s And 50s During The Covid-19 Crisis

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As the Covid-19 crisis continues, each generation is assessing the personal financial impact this pandemic is causing. From short term liquidity to long term issues like retirement planning, it can feel like your personal finances have been turned upside down.

While everyone is experiencing financial challenges, one generation has weathered its share of financial storms - Generation X or Gen X. This generation, now in their 40s and 50s, doesn’t ask for coddling and they certainly don’t whine about being in a crisis. But while they have been hit with numerous crisis over their adult years, how they react during this crisis will be key to their overall financial success. 

“While this current crisis with Covid-19 feels different somehow than past crises, in many ways things aren't so different,” says Lindsey Bell, Chief Investment Strategist for Ally Invest. “Gen Xers will remember that during the market crash of '08, the months following 9/11 and even the Dot Com bust, there was a sense the world was on the brink of disaster and that things would never quite return to normal.”

For many in their 40s and 50s, this financial crisis can bring opportunity for their investment portfolios. Taking advantage of this opportunity requires having a focus on strategy, understanding your current financial weaknesses and taking proactive steps if you have the financial flexibility.

Strategy, Strategy, Strategy

In volatile markets, staying focused on the long game is important. The market might be in turmoil, but most portfolios have been structured based on strategic asset allocation. These allocations are back-tested through market history including periods of significant drops. 

Checking your emotions at the door is key to successfully managing a portfolio during a significant market sell-off,” says Matthew Kircher, MBA, of Fairpoint Wealth Management in Cleveland, Ohio.

Given current life expectancy, most investors in their 40s and 50s have constructed a portfolio that needs to withstand another 40 or 50 years. One tool that should be considered is the use of an Investment Policy Statement(IPS), a long-term strategic plan for the portfolio.

All investors should have an IPS.  An IPS sets out the ground rules of the investment process – it is the document that guides the investment plan. And, it is best to develop an IPS in a rather calm market,” explains Robert R. Johnson, PhD, CFA, CAIA, Professor of Finance at Creighton University in Omaha, Nebraska. 

Developing this statement in a less volatile market provides a guidepost when things get turbulent. 

Johnson explains “It should not be changed as a result of market fluctuations.”

If you don’t have an IPS, sitting down and writing out your portfolio goals and target allocation for the long term can be a good exercise when fear is in the market.

Precarious Situations

But maintaining that long-term perspective can be challenging in the short term depending on one’s current employment and financial situation. For those who are feeling precarious, the right approach to rebalancing your portfolio can provide liquidity. This is especially important for those in their 40s and 50s who are sandwiched between their children and parents who might need financial help during the crisis.

“If there are major concerns around health or job loss, this may mean selling bonds to free up cash to cover near term expenses,” advises Jay Abolofia, CFP and PhD, an advisor at Lyon Financial Planning outside Boston, MA.  

This approach can make a lot of sense as most portfolios are now overweight bonds. You don’t want to sell equities right now at a loss. By selling bonds, you are accessing liquidity without locking in significant losses.

If you don’t have a sizeable taxable account in which to trim bonds for liquidity, you can also look to make changes to retirement accounts.

If you are someone who is nervous about your job and your income level for the foreseeable future, it's okay to take a pause from contributing to your retirement account, but then you have to be very diligent about starting those contributions back up as soon as you can,” advises Bell.

Opportunistic Steps

Some in their 40s and 50s may feel that this is an opportunity to propel their investment accounts to a better place in light of their retirement goals. Valuations are lower than they were just a few months ago and many believe that the long-term fundamentals of the economy are still in place.

“Investors definitely want to be opportunistic, however being opportunistic doesn't mean applying a short-term investment strategy to your long-term goal, or vice versa,” says Matt Rosenberg, CPA, and a member of the AICPA’s Financial Literacy Commission. “It means taking advantage of the actions that can add value to your portfolio with certainty, while equity markets are down.”

This means reviewing your overall asset allocation and determining which equity asset classes you are under exposed to. But you want to be strategic as you deploy cash as this crisis will continue over a number of months. The best course of action may be to structure a dollar cost average plan that allows you to buy into equities over the next few months on a regular basis.

Further, it may also be an opportunity to make some moves that you haven’t had a chance to consider due to the strong performance of the equity markets in the past few years.

Rosenberg agrees. “This includes rebalancing, tax loss harvesting, and selling/replacing inefficient legacy securities from portfolios that might otherwise have resulted in a high tax liability, among other things,” he says.

The Time Is Now

Those in their 40s and 50s need to be smart and strategic as they manage their investments during the Covid-19 crisis. While there is no ‘one size fits all’ solution, keeping perspective in light of your individual situation will allow you to better navigate the decision making needed in your portfolio. From utilization of an IPS, to understanding where you are vulnerable, to taking advantage of opportunities, 40 and 50 somethings can make the right investment decisions now to be in a better place in the long term.

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