If you're one of the many Fools with a dream retirement plan, it can be a stressful time right now. There are many Australians who have invested heavily in their future and been exposed to the risk of shares right now.
Yes, shares can offer big upside returns. In fact, since the bottom of the GFC in March 2009 until 21 February 2020, the S&P/ASX 200 Index (ASX: XJO) climbed 126.7% higher. That's excluding dividends. But the reality is that return comes with risk, which many of us are feeling right now.
However, while I don't like losing money (does anyone?), I'm not panicked right now. Here are a few reasons why I'm staying calm about my retirement plans amidst the market madness.
1. I've got a high savings rate
Bear markets are when you really find out everyone's personal finance situation. While some investors have been forced to sell for liquidity right now, having some back-up liquidity is key.
One reason I'm comfortable with my retirement plans is because of a high savings rate. The definitions of a savings rate differ, but I personally think of it as the percentage of money I'm saving based on my total take-home income. If you can boost your savings rate, you're well on your way to financial stability and robust retirement plans.
There's no use investing if you don't have the cash to invest. That's not to say you need to be saving millions each year. But by keeping expenses low and trying to always reduce your spending, you can rest easy at night knowing your retirement plan has a solid foundation.
2. I trust my investment strategy
A volatile share market is not the time to be panicking about your retirement plans. When billions of dollars have been wiped from ASX shares in recent weeks, now is not the time to sell, particularly now that we're seeing a recovery of sorts. If you've got a good savings rate, then hopefully your liquidity is OK. I'm personally quite comfortable with a diversified portfolio of ASX shares right now.
Of course, a market correction hurts. Seeing your investments lose thousands of dollars in just a few weeks is painful. But that's exactly what diversification is for: the hard times. If diversification didn't help you in the bad times, it'd be easy to just load up on growth shares like Afterpay Ltd (ASX: APT) and hope for the best.
But when economic times are tough, it's best to keep calm and carry on. If anything, you should be on the lookout for good tactical buying opportunities with that excess cash. Whether you're investing in cheap ASX 200 shares or hoping for stability, I think it's wise to keep an eye on the market but not be in a selling mindset. If anything, look for opportunities to build up your portfolio to accelerate your retirement plan while ASX shares are cheap.
3. I realise that economic cycles come and go
It's easy to forget when you're in a bear market that these things have happened before. Of course, we have never seen COVID-19 and we don't know what the damage will be. But there have been "black swan events" before and we will see them again. The reality is that the share market does trend upwards over time with the economy.
Even with the coronavirus pandemic, it will pass in time. And when that is over, we will see more innovation and more economic growth. That's good news for corporate earnings and therefore ASX shares.
The key is picking which sectors are set to struggle and which will benefit in the future. I think data centre operators like NEXTDC Ltd (ASX: NXT) could be a good buy for the future while ASX retailers are likely to see more pain in the short-term.
Whatever your views, it pays to think for the long-term. If you can stay calm and rationalise these events, you can continue on your path and potentially even accelerate your retirement plan.
