Employees are understandably worried about their short and long term financial future in the face of the Covid-19 pandemic. At the moment, many are focused on the immediate: will I still have a job and will I still be paid. But many are also concerned about the dramatic losses to their retirement accounts as stock markets have dropped quickly in recent weeks.
In order to help support your employees’ financial wellness, we have put together this guide to help your team make effective decisions.
Here are 4 things to remember in the short term to get through this downturn as smoothly as possible.
1. Don't Panic
All crises end, and a downturn in the market is temporary. Therefore, it’s better to think long term than to panic and sell stocks at a low. Selling locks in your losses. Right now losses are only on paper. If employees sell, they will lose money. Successful investors outperform others by remaining patient and riding out the volatile waves. The best thing your staff can do during a stock market correction is to stay the course.
2. Time and Risk are Linked
Equity markets are risky—in the short term. In the long term they offer the best returns. Employees with funds in retirement accounts should not be concerned as long as their retirement date is several years in the future. During the last financial crises in 2008, markets recovered within five years and went on to set record highs.
Remember that savings and investing is just a means to an end. Goals, objectives, and individual life circumstances should dictate the choice of investments NOT the state of the markets.
3. Stay Invested
As Warren Buffet says, “Successful investing takes time, discipline, and patience.” Remind your employees that one of the most successful investors in the world stays in the market during a correction and looks for opportunities to invest more. It takes great discipline to remain calm while everyone else is losing their heads, and those that do will be rewarded.
Investors who stay in the market catch the “bounce back” days that happen in bear markets. Investors that leave the market during a downtown and try to time their re-entry invariably have lower long-term returns than those that choose to ride the stock market roller coaster.
4. Continue to Invest
Employees participating in employer sponsored plans through payroll deduction or who are regularly contributing to personal savings through pre-authorized debit should continue investing. While the decline in the markets has negatively affected their current balances, continuing to invest during the downturn means that employees will be buying stocks at sale prices. When the next bull market occurs—and it will return—the amounts bought on sale will yield significant future returns and help their total portfolio to recover faster.
It is not nice to see your investment portfolio go down in bad market times. But the best thing your employees can do right now is nothing. Help them to tune out the noise, stay the course so that they can ride out the downturn and stay in the market to catch the wave on the way back up.