Many experts say the best way to invest for retirement is to put money in stocks and bonds and then hold tight.
The so-called COVID crash of the stock market in February and March of 2020 certainly put that theory to the test. The Dow Jones Industrial Average fell 11% on Feb. 24, 10% on March 12 and another 13% on March 16.
The series of drops coincided with the beginnings of the COVID-19 pandemic and all the resulting social and economic disruptions. Holding tight meant white knuckles for many everyday investors just hoping to keep their home and savings in some semblance of order at a time when no one really knew how long or how damaging the pandemic would be.
“The giant dip we saw in 2020 rattled a lot of individual investors,” said Gail Murdoch, the owner of Cardinal Investment Group in Conway.
But the hold-firm philosophy proved wise as the stock market regained all its losses by May 2020, helped in large part by stimulus packages approved by the federal government.
Murdoch formed Cardinal in 2009 and is also co-founder of its sister company, Veritas Independent Partners, a combined broker-dealer and registered investment adviser firm. Cardinal has thousands of accounts, not all of them retirement-based, and manages more than $300 million in assets, Murdoch said.
“We saw a lot of people saving more,” Murdoch said. “I’m sure a lot of it was because of the stimulus money, but also some people weren’t spending as much because they were huddling at home and not traveling and doing the things that they normally do. A lot of people were not focused on retiring ... but they were saving more.”
Ben McLintock helps manage more than $14 billion in investor assets as senior wealth adviser and senior vice president of Arvest Wealth Management. He said market turbulence can cause investor anxiety. But that’s not a reason to change philosophy.
“Economic upheavals commonly cause investors to feel high levels of emotional stress,” McLintock said. “The stress this time around was only amplified by the fact that the upheaval was caused by a virus spreading across the globe. While these kinds of events can impact a retirement account’s performance, they are not necessarily reasons to change management strategies.”
Time to Buy
Murdoch said she did modify her management philosophy during the early days of the pandemic. At that time, she and her four colleagues at Cardinal thought about which stocks might become kryptonite during the pandemic and which ones might become steals.
Murdoch said her team thought there were certain stocks that would be best to avoid, even in index or mutual funds. To avoid them, Murdoch said Cardinal began to put clients’ money in “targeted” individual stocks that she believed would survive the pandemic and thrive after.
“A lot of the pundits out there say buy a mutual fund and hold it forever,” Murdoch said. “We shifted to a more micromanaged approach where we added more individual stocks to our portfolio. At the beginning of the pandemic, everything was going down because people were just mass selling out of the market.
“Our thought was, you know what, some things are going to survive this and some companies may not survive this pandemic. In hindsight we can see that most things recovered fairly well but not all things. We have been glad we did it. It has been a good thing for us.”
Murdoch said a financial plan is a “living, breathing thing” and minor tweaking and adjusting are necessary even in normal economic times. She said proper financial management should always be based on the clients’ goals and not just what’s happening in the here and now.
“It comes down to how the long-term economic forces are affecting an investor’s financial plan,” McLintock said. “Everyone’s situation is different, and a person’s or couple’s financial plan needs to be built on that unique perspective. Changes in a person’s individual situation or retirement goals that require updating their financial plan are what should drive the need for changing strategies, not short-term market events.”
While individual investment portfolios may have felt stress, there was a sense of security in two major pension plans run by the state.
The Arkansas Teacher Retirement System reported a 31% increase in assets and now has more than $21 billion, said Executive Director Clint Rhoden. Duncan Baird, the executive director of the Arkansas Public Employees Retirement System, said the fund had its best year ever with 31.5% growth and now over $11 billion in assets.
“Generally we are such long-term investors that any situation, any time frame that has volatility, is just part of our calculus,” Rhoden said. “Volatility is not that big of a concern for the Teachers Retirement System. We did have a really good return this year and a lot of that is due to the volatility in the market.
“The Teachers Retirement System is in such good shape that all of our retirees are fully funded. All of our benefits in general are fully funded well out past 100 years.”
Rhoden said the pension fund managers don’t ignore global and market forces that may be at work, and the system does a full review every few years to properly assess how the fund is doing. He said many teachers called in worried about their pension during the first surge of the pandemic, but the system provides the efficiency and security of scale.
“We have an extremely diverse portfolio,” Rhoden said. “We are essentially invested in all sorts of risks from small cap to large cap and even a small amount in what is considered hedge fund investing, which is a lot riskier but has a lot better returns, real estate and even direct investments in industry development projects in Arkansas with bonds. We do have some active managers who manage a small portion of the portfolio in what we call active stock. We will buy and sell individual stocks.”
Baird said APERS used the investment consultant Callan of San Francisco, and the investment allocation is assessed every five years. The next assessment is scheduled for 2023.
“We haven’t made any changes from an investing standpoint because we are long-term investors,” Baird said. “We are looking out 10 years and 30 years, and we have designed our investment policy and plans around that. We really didn’t even consider any changes there; we just watched things very closely.
“We really stayed the course and that turned out to be the smart thing to do.”