Author Topic: Coronavirus retirement funds question  (Read 1351 times)

frugaldrummer

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Coronavirus retirement funds question
« on: February 06, 2020, 12:46:06 PM »
I am a largely hands-off investor with money in mutual funds in my keogh and 401k. I am in the process of transferring these funds soon into a different account (ex-husband is retiring).  I am just a few years from retirement .

As a medical professional with an advanced degree in molecular biology, I am concerned about the economic effects of the coming coronavirus pandemic. (It's very unlikely to be controlled at this point since mild cases and even asymptomatic cases seems to still be able to transmit the virus). It won't be a catastrophic zombie apocalypse - the Wild Ass Guesses I keep calculating suggest maybe 200,000 to 1 million deaths in the US, maybe less if we can stall it until later in the spring. Still, there is a potential for considerable economic disruption in the short term and with the stock market already overvalued, I'm concerned about the possibility of a large drop. I'm not a market timer but I'd like to take about half my money and put it into cash (knowing full well I may give up 1/2 of some short-term gains) so as to have funds to reinvest if the market takes a big dump.  (No other cash available to invest right now).

I see the possibility of a major recession as more dangerous to my retirement plans than giving up some gains in an already overheated market. If the pandemic doesn't materialize as expected I will re-invest my funds. Also, if the pandemic materializes as I expect, it may affect my business income in an adverse way for a few months, and I might need some of the funds from my retirement account this year if that happens.

On looking at my investment options, there doesn't seem to be an actual "cash" or CD option but just some investment option that is labeled as an Interest Income Fund but it is bond-based. Any ideas or comments out there?  I will also be calling to see if there's just a simple cash reserve option that I'm not seeing.

bbqbonelesswing

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Re: Coronavirus retirement funds question
« Reply #1 on: February 06, 2020, 01:35:30 PM »
The flu kills tens of thousands of people in this country every year.

https://www.cdc.gov/flu/about/burden/past-seasons.html

There is always some new sensational reason to panic and get out of the market. Coronavirus, trade war, Y2K, war with Iran... personally, I will ignore this one.

If you feel like societal collapse is imminent and don't want to ride through the volatility, then right, you can allocate more to your emergency fund, CDs, or bonds. You should call the company you are invested with if you have questions about their options for cash- or look online.

wellactually

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Re: Coronavirus retirement funds question
« Reply #2 on: February 06, 2020, 01:52:04 PM »
It looks like WHO and other studies have estimated a mortality rate of 2-3%. In order for 200,000 people to die in the US at that rate (3%), 6.67M people would need to be infected. For 1M people to die, 33.34M would need to be infected.

There have been 12 confirmed cases in the US.

You do you.

Malkynn

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Re: Coronavirus retirement funds question
« Reply #3 on: February 06, 2020, 01:57:07 PM »
Are you retiring soon?

Are you expecting a drop in the market that it will never recover from?

If no, then what is the question??

Daisyedwards800

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Re: Coronavirus retirement funds question
« Reply #4 on: February 06, 2020, 03:03:57 PM »
I've been following this closely and I moved 70% to cash.  This is not the flu.

frugaldrummer

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Re: Coronavirus retirement funds question
« Reply #5 on: February 06, 2020, 05:50:42 PM »
Practical math on coronavirus (remember I am a medical professional and molecular biologist by training).

Although the current mortality rate is 3% it is almost certainly much less than that - only bad cases are even getting tested in China. So in my assumptions I figure that the recognized cases are perhaps only 10% of the total cases, since we know there are mild and asymptomatic cases documented.

That would put the mortality rate at 0.3%. This is spreading at a doubling rate of 6.4 days, so basically doubling every week. Current cases, recognized and not recognized, are probably around 100,000 to 150,000 (rather than the almost 30,000 documented cases. There is a severe shortage of testing ability in China so these are not unreasonable estimates given the reports on the ground. It may be much worse already.).  100,000 doubling every week leads to 1.6 million people infected in another month.  This is not likely to be able to be contained even with the quarantine of Wuhan because of the relatively long incubation period and infectivity of mild and asymptomatic cases.

Since no one has immunity to this new virus, and it spreads rapidly, it's not unreasonable to suppose 20% of our population could end up infected (the Spanish flu infected a third of the world's population). 0.3% of 20% of 331 million US people would be 200,000 deaths - about five times a typical "moderately bad" flu year. Hospitals would be flooded with 2 million extra pneumonia cases in a relatively short period of time, straining our entire medical system. (Already it's not uncommon for my local hospitals to cancel elective surgeries in January during flu season due to lack of beds). It's not zombie apocalypse numbers but very disruptive. More disruptive if the germophobe-in-chief keeps going all-in on quarantine measures not recommended by the WHO.

If on the other hand my estimate is too generous, and the asymptomatic and mild cases are half the cases instead of 90% of the cases, the number of deaths in the US would be about one million.

This coronavirus is actually much more dangerous than the more lethal SARS or MERS precisely because of the larger number of mild or asymptomatic cases. They will cause it to be spread much more easily and make identifying cases much more difficult.  0.3% of 20% of the world's population is many more deaths than 30% of 5,000 people.

Now nothing may come of it - we are approaching spring, and this virus may die out in the summer as cold viruses do.  That would give us some more time to work on treatments before it returns in the winter. China might actually be able to contain it after all if we keep putting out the fires and it doesn't get a foothold in countries like the Philippines of Cambodia or on the African continent.  It could mutate and become weaker (or stronger!) as it spreads.

But in the current setting of a stock market that is already overvalued, the clear disruption of China's economy that is going to result in the short term, and the possibility of a major stock market drop if we are sitting here in a couple of months with numerous outbreaks in the US and people starting to panic, I want to have some of my investment in cash so that if there is that major drop, I can buy back in on the drop. My retirement will be within 3-7 years so I want a hedge against having to wait years for my investments to come back up like they did after the last recession. I'm willing to give up 50% of my possible gains over the next couple of months for the security of knowing I've locked in some of my current gains and could possibly make some real money if the worst occurs.  I wouldn't bother if I was 10 or 20 years from retirement. And I don't usually market-time, this just happens to be an extraordinary situation.

BTW, when you read "oh, it's ok because they have a treatment now" - not so fast. There is some - very weak - evidence that maybe some combination of antivirals may work. But with a lot of Chinese pharmaceutical manufacturing at risk, who is going to make all those drugs? And is it feasible to make enough to treat everybody who needs them within a few months time? (Answer - no).

On the bright side, I did find an article on another, weaker coronavirus that indicated that caffeic acid (not caffeine) - a component in coffee - might have an effect on it, so drink your coffee if it shows up here!

Capsu78

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Re: Coronavirus retirement funds question
« Reply #6 on: February 07, 2020, 12:33:15 PM »
Frugaldrummer,
Thanks for the perspective.  I just commented on another thread that Norwegian Cruise Lines just cancelled all Asia cruises until December. Another ripple in the pond.  The Risk Assessments these large companies are having prepared don't seem to be very encouraging as these are share price sensitive actions beyond the costs associated with the decisions.

TrMama

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Re: Coronavirus retirement funds question
« Reply #7 on: February 07, 2020, 01:04:55 PM »
It sounds like you're not comfortable with your current asset allocation. If that's the case you should change it, regardless of whether the current news cycle is on an illness, a weather event, or whatever calamity tomorrow may bring.

If you're confused about the specific investment options provided by your investment company, you need to call them. We can't tell you how to navigate their website. However, you probably want to move some of your investments into bonds to help you sleep during periods of volatility.

Malkynn

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Re: Coronavirus retirement funds question
« Reply #8 on: February 07, 2020, 01:21:00 PM »
Frugaldrummer,
Thanks for the perspective.  I just commented on another thread that Norwegian Cruise Lines just cancelled all Asia cruises until December. Another ripple in the pond.  The Risk Assessments these large companies are having prepared don't seem to be very encouraging as these are share price sensitive actions beyond the costs associated with the decisions.

And how is volatility accounted for in your allocation model?
Whatever allocation you choose, it shouldn't be affected by individual market events.

frugaldrummer

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Re: Coronavirus retirement funds question
« Reply #9 on: February 07, 2020, 04:10:56 PM »
I would not normally mess with my funds. I think however the combination of the existing supply chain disruption and the likelihood of panic as it spreads to the US, combined with an overvalued stock market, makes a situation with a substantial risk of a scary drop. I may be wrong - and if I am I give up 50% of my gains in the next couple months. Or I may be right and be in a position to salvage my retirement and even make gains by buying back in on the drop.

Again, not something I would bother to do if my timeline was longer. And this is based on the fact that I know a lot about this, have a good grasp on the medicine and the math. I certainly wouldnít recommend anyone else do so.

I was able to talk to my broker - no, my existing account doesnít have a cash option, the closest thing was a cash preservation fund which we rolled it into. But I also set up my new IRA and started the process to roll my Keogh and 401k into the IRA, where I will have a cash option. In fact some smaller funds and the cash preservation fund will have to be cashed out in the process, but my nice Vanguard Wellington fund will transfer (which is nice because itís a closed fund). Iíll spend the next couple days thinking about my allocation in the new IRA.

Freedomin5

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Re: Coronavirus retirement funds question
« Reply #10 on: February 18, 2020, 05:06:50 AM »
@frugaldrummer

Thank you for sharing your perspective. It makes a lot of sense. Given todayís Chinese CDC report that the coronavirus is actually deadlier than the common flu, I think youíre making a wise decision. Apple has already cut its sales forecast and HSBC is laying off 35,000 employees in the next few years. I canít predict the future, but if this trend continues, itís good to be prepared. Also, if youíre planning to retire in a few years, you may want to increase cash anyway to do a reverse glide path and mitigate sequence of returns risk.

trollwithamustache

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Re: Coronavirus retirement funds question
« Reply #11 on: February 18, 2020, 08:07:40 AM »
1. Do they have a US treasury Bill fund option? that would be your safest non-cash option. If T-bills loose value, you probably want to holding Remington products in your own gun safe.

2. How far do you really want to follow this to be safe?  Moving a few investments around feels like a knee jerk reaction.  This new mutual fund doesn't buy you any biosecurity at home.

3. In terms of investing, Corona virus is probably bad for industrial manufacturing and consumer goods. its probably good for any healthcare supplier and drug companies making antivirals.  If the world truly segregates you probably want to own some companies with food capacity in your home country.  Maybe its good for Telcos and companies like Slack that make work from home solutions. It is not clear to me fleeing from stocks is the right call.

4. Recessions should be dealt with the same way regardless of cause. Either while working increase a reserver to draw on, or cut your spending in retirement during the recession when it happens..