USA TODAY US Edition
When investing, here’s how to recover from mistakes
I’m embarrassed to say I panicked at the end of March and sold all my investments and went to cash. Before I knew it, the market was on the rebound. I kept assuming the market would crash again and give me a chance to buy back in, but whenever the market went down, I never thought it was enough of a decline to justify buying back in. I’m 55 years old and have about $600,000, down from $960,000. Did I just ruin everything I’ve worked for? I’m really upset and don’t know what to do. Richard
I’m terribly sorry you’re in this situation, Richard.
I know how awful you must feel, but frankly, there’s nothing you can do about the opportunity and money lost. It will take awhile to come to terms with this, but the sooner you do, the sooner you can move on and put together a feasible Plan B.
In fact, trying to reverse history is both impossible and a complete waste of time. Mourn the money lost and move forward
Plan B is so intense and robust, you won’t have the luxury or even the time to look back on what could have been.
First things first: You have a major risk-tolerance problem. People panic sell for lots of reasons, but the primary reason is because they’ve invested outside of their risk tolerance.
Your risk tolerance is the amount of volatility you’re willing to endure, prior to suffering undue stress and anxiety, which eventually can lead to irrational trading.
In other words, your risk tolerance will help you determine what investments to choose so when the market gets rocky, you aren’t inclined to make sudden changes. Needless to say, you didn’t have the right investments selected for your particular ability to tolerate risk and volatility.
I could tell you to stay calm until I’m blue in the face, but my directive is pointless if you’re not investing in accordance with your risk tolerance.
Having had this same conversation for over two decades, don’t fall for the urge to dismiss this very important first step.
Not only do you need to change the way you invested the first time, but you must make sure you don’t try to take more risk to make up for lost time. That’s a very common second mistake,
which can permanently seal your fate of a failed retirement.
Next, you have to get your money out of cash. I’m not necessarily saying you need to get directly back into the stock market, but you’re going to need your money to earn more than close to a zero percent rate of return.
This is also my opportunity to tell you how badly you need a good financial adviser. Not only will a good adviser help you determine your risk tolerance, but that person will also help you choose investments that will align with this newfound risk tolerance. Don’t get further caught up with trying to time the market when getting back in – that thinking is what got you into this jam in the first place.
Now you need to determine how much money you’ll be able to invest over the remaining years of your career. Your new adviser will easily be able to put together projections to help you understand what sort of nest egg you’ll be working with on your chosen retirement date. That’s just math, and you should resist the urge to overcomplicate that process.
Now for the hard parts.
First, whatever income your adviser tells you will be available via your nest egg for retirement, you need to begin adjusting your current lifestyle to meet that level of income sooner rather than later.
Easing into that adjusted retirement lifestyle is much more feasible than trying to figure it out once you retire. Unfortunately, it’s admittedly tough to find the motivation to do that now. But when you stop and think about it, waiting to adjust your lifestyle until later makes the task much more difficult.
The second “hard part” is forgiving yourself.
You messed up. No one died. It’s over. And now you have to extend yourself some grace. That’s really hard to do; much harder than adjusting your lifestyle to match your future retirement income. But hopefully, as time passes, you’re able to come to terms with your new reality and enjoy a peaceful retirement.