SAN ANTONIO – Dr. Karan Bhanot, the department chair and professor of finance at UTSA, understands the fear people might have with the current state of the market.
The volatility of our financial markets due to the coronavirus pandemic has caused many people to worry about their savings or retirement and 401(k) plans.
But Bhanot says those anxieties shouldn’t cause you to do something you might regret later.
“If you have stocks, it’s a good idea not to sell right now,” said Bhanot. “The best thing you can do is really not look at your 401(k) plan closer.”
Bhanot says while people may be tempted to take money out from their 401(k), they in fact, should think about doing the opposite.
“Evidence shows that when returns are very low for a particular time period, it is very likely that you have excess returns for the next three to five years,” said Bhanot. “That’s really the time to buy and not the time to sell.”
For individuals with money or savings in the bank, Bhanot advises to keep it there. He adds this is not like the financial crisis of 2008.
Banks are stable and the federal reserve is pumping money into the system.
“This is really a health pandemic and it’s not because of economic imbalances,” said Bhanot. “The government has stepped in. They are aggressive in finding cures and vaccines. They have a stimulus in place.”
The coronavirus is causing a huge ripple effect in our economy. Businesses have closed and a record number of people have lost their jobs.
Those financial hardships may leave you no choice to dip into a 401(k), but most experts say it should be a last resort.
You should evaluate your short-term financial needs and potential tax implications.
Also keep in mind, the market can rebound quickly after an economic downturn.
“The empirical evidence shows exactly that when times are tough, expected returns are higher and prices are lower. That’s really the time to buy and not the time to sell,” Bhanot said.
There is hope workers will be able to get back onto their feet more quickly than during other economic crises. Bhanot is optimistic we can weather the financial storm.
“If you have an extended economic crisis or a recession of the type that we had last time, it takes a while for that to play out, three, four or five years,” said Bhanot. “As things start to open up, we will see increased economic activity. It is painful, but my thought is that things will recover more quickly than they did in 2008.”
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