Will the market crash affect your retirement?
With markets crashing around the world due to the spread of the Covid-19 virus, many have seen their wealth vaporise overnight.
Some investors who have been conscientiously saving and building up their retirement portfolios are now seeing their shares decimated by a growing global pandemic.
As a result, these investors now believe that their retirement has been pushed back many years due to this single event.
Working couples who have been diligently saving and investing regularly may have set a target age or portfolio value as their retirement goal.
This may have been realistic during normal times, but it also has to factor in the incidences of market downturns and recessions.
The big question now is - would this market crash cause a severe setback to your retirement plans?
SETTING A REALISTIC RETIREMENT GOAL
First off, you need to ask yourself if your retirement goal was realistic to begin with.
To build up a retirement nest egg, many seek to save and invest a certain sum of money annually. This will snowball into a significant sum after the effects of compounding are taken into account.
However, the nature of markets is that they do not go up in a straight line.
An investor has to factor in the occasional crashes and recessions that will, inevitably, negatively impact investment values and drive them lower.
OPPORTUNITIES ABOUND DURING CRISES
Armed with practical and realistic goals, investors should turn their attention to how they can capitalise on such crises.
The Chinese word for "crisis" (危机) can be split into two separate words — "opportunity" and "danger".
This is an apt way of describing a crisis as opportunities do abound amidst the danger.
When stocks are sold off indiscriminately by panicky investors, you can take advantage of this fear by calmly purchasing shares in strong, well-run businesses.
These businesses are sturdy and hardy enough to be able to withstand the crisis and will emerge from it even stronger.
They include blue-chip companies with competitive advantages that can continue to pay healthy dividends through the crisis, as well as cash-rich companies with consistent free cash flows.
ACCELERATING YOUR RETIREMENT
Investors with the cash to allocate to these businesses can buy them on the cheap due to depressed valuations and poor sentiment.
This is a great way to accelerate your retirement as the subsequent recovery will result in both capital gains (as businesses' earnings recover) and higher dividends.
So, the idea that a market crash represents a setback to retirement is only true if you sit idly by instead of taking advantage of the crisis.
If you consistently allocate capital into great companies during bleak times, your investment portfolio should end up doing significantly better than someone who did not seize the same opportunities.
GET SMART: TAKE HOLD OF YOUR DESTINY
It's time to change your perspective of crises.
Though share prices may get battered in the short-term, the good companies will always recover once the economy bounces back.
Ignore the effects of your paper losses and be sure to continue investing through the lows of the market.
That way, you can easily bring forward your retirement goals.
There has never been a better time to invest. The bear market is here to offer you the opportunity of a lifetime to grow your retirement funds.
Act now and be in control of your investment destiny.
This article was first published in The Smart Investor. All content is displayed for general information purposes only and does not constitute professional financial advice.