1. Change your 401(k) contribution allocation to 100% U.S. Stock
Don’t worry about rebalancing your entire account; just focus on the new money going in with each paycheck. Retirement is a long-term investment, and buying relatively small amounts over the next few months will pay off in the long run. If stocks go down from here, you’ll buy cheaper.
International funds are spread across regions by market size, and you don’t want them all right now, so best to avoid broad foreign exposure.
Many employer plans have limited options, so an S&P 500® Index fund is fine. If you have a large-cap growth fund, overweight to that, if you have a “total market” fund, put 20% here.
If you have established automatic quarterly rebalancing, you may want to turn that off and set a reminder to revisit in six months.
2. This is a good time to make your 529, HSA or Roth IRA investments.
If you’re waiting to make your 2019 IRA contributions, put at least 25% in now. You have until your tax filing or July 15th, whichever is earlier.
2020 Healthcare Savings Plan contributions may be payroll deducted. If so, follow the 401(k) strategies above. Be sure to keep enough in cash to cover current medical payments.
If you have younger children in an age-based 529 plan, then just add to that.
If you’re making regular automatic contributions to an IRA, again switch to 100% US Stock.
3. Understand the Difference Between Market Opportunity and Speculation
Times of market dislocation does create opportunity, but it’s for a reason. The initial sharp declines of March were a reaction to having our economy on hold. They went down more because it appears that recovery will linger, and we will be in a recession of unknown duration.
This is a good time to put some cash to work, but markets will continue to go up and down. The current rally is because it looks like the virus toll may be lighter than many predictions, and the Federal Reserve is taking swift and decisive action.
So yes, invest now for the long-term and your prospects are good. When markets fall after investing, a speculative investor gets squeezed between riding it down or taking a loss. Don’t put yourself in that position. Investing for the long-term affords you the comfort of taking short-term volatility in stride.