I ain't even gon' hold y'all...shit crazy right now. As if the whole world experiencing a pandemic involving a virus that we know little about wasn't enough, now the economy is seemingly crumbling right before our eyes like a dry Nature Valley bar.
A lot of restaurants are delivery only, the bars are closed n'shit, and anything that's even remotely entertaining is a distant memory. Fellas, you might even have to do the unthinkable: hold consistent conversations with your girl. Godspeed.
So, yeah, shit's crazy right now, dawg. As the uncertainty grows, folks are becoming more and more anxious about their financial future. Reading this post isn't going to take your situation from questionable to outstanding, but at the very least, we figured we'd come through and drop off some tips for you when it comes to your 401(k) and other retirement accounts during this time.
Play the Long Game
At the end of the day, if you're investing for retirement—which is the point of a 401(k), IRA, or 403(b)—the day-to-day movements of the market shouldn't be your concern. It's tempting to look at your retirement account and become discouraged when you see it dropping like flies, but that's just adding unnecessary stress during a time when people are already panicking like Black men when they drop their wallet in front of the police.
A common misconception in investing is how most of the money is actually made. Too many people focus on stock prices and ignore their total returns, which includes the money paid out in dividends. Dividends are quarterly payments that companies give their shareholders from their profits, and historically, they account for about 90% of a portfolio's long-term total returns.
The daily changes in a stock's price become irrelevant for long-term investors because they know that's not where the money is made. As long as companies are still paying out their dividends, you can ignore the fluctuating stock price like I do 1-800 numbers when I know I'm late on a bill.
Even if some companies stop paying out dividends during this period (which many will), if they're a company worth investing in, they'll be back paying them in the near-ish future. Stay patient—hell, it ain't like you got anything else to do during this time.
Let's imagine that you buy 100 shares of Pookie's Mid-n-40s for $20 each ($2,000 total) and they pay out $2 in dividends every quarter. In 10 years, it doesn't matter if Pookie's Mid-n-40s share price is $10 or $30, you still would've earned $8,000 in dividend payments during that time.
100 shares * $2 dividend = $200 quarterly ($800 yearly)
$800 * 10 years = $8,000
Once a company reaches a certain size, making lots of money strictly off changes in its share price is unrealistic; the real money is made in the dividends.
Review Your Allocation
Your portfolio allocation is how much of your money is in stocks versus bonds. The younger you are, the more of your money you should have in stocks because of their return potential. It can be tempting to rush and take your money out of stocks when you see the market skydiving with no parachute, but that's hustlin' ackwards for most people.
If you're young—say, in your 20s, 30s, or early 40s—your retirement account has decades to recover from these hard times. Without the advantage of time and compound interest (the 8th wonder of the world), many people's retirement savings won't be enough to last them until they kick the bucket. Don't hustle backwards; ride this out and let Father Time do the work for you.
The rule of thumb is to subtract your age from 110 and have that percentage in stocks. For example, if you're 30 years old, you would have 80% of your retirement account in stocks and 20% in bonds. If you're feeling anxious because you think stocks are too risky right now, subtract your age from 100 (70% in stocks if you're 30), but you shouldn't go too much lower than that. You don't want to be 25 with 50% of your 401(k) in bonds, that's super trash. You better off giving your money to somebody in the hood and letting them flip it for you.
Buy Stocks on Discount
Warren Buffett once said, "Be fearful when others are greedy and greedy when others are fearful." With the market being so trash right now, some people see problems, others see discounts. When you invest in a company, it should be because you believe in the fundamentals of the business—what they're selling, how they manage their money, and how worth a damn their upper-level management is. Just because their stock price dropped doesn't mean those fundamentals changed.
If you're blessed to still be employed and getting paid, consider putting some extra money into the stock market. It's not like you can spend it on anything other than groceries and streaming subscriptions right now anyways. Take that bar and club money and put it towards something that's going to make you some money.
If your company matches your 401(k) contributions, contribute that amount and not a penny more. Take that extra money and put it into an IRA because you can invest in whatever you want and they have cheaper fees. With your 401(k), you can only invest in the options your company allows.
If you don't care to look into individual stocks (I don't blame you), look into exchange-traded funds (ETFs). ETFs group companies together based on specific criteria, like size or industry, and lets you invest in all of them at once. Take advantage.