There's a lot to be worried about right now, especially as 1 in 3 Americans are ordered to stay at home.
The coronavirus pandemic has taken our lives--and the markets--by storm and it's led to a lot of volatility. So, when thinking about your IRA, your 401k, and your retirement in general, what do you need to know?
Robert Powell, editor at Retirement Daily joined TheStreet to break down why now might be the time to convert your IRA and his general advice to anyone who's starting to worry about their retirement down the line.
Watch the full video above for more.
Worried about your retirement?Joining me today is Robert Powell, editor of retirement daily. Bob, why should I be converting my IRA to a Roth IRA at this point?
Well, there are two reasons to do that at the moment. Katherine. One is you want to convert your Roth IRA when the value of it is lower and when you have a long time horizon. So let's say for instance you converted your traditional IRA into a Roth IRA at the beginning of the year, you would be paying taxes on a distribution that would be much higher than it would be had you converted it. Now when prices are lower, so in essence what you've done is you've created a lower tax liability on the conversion. That's one. Two, the important thing about having a Roth IRA, especially if you don't have a Roth IRA, is this later on when you retire, you want to have something called account diversification. And that means in essence that you have a traditional IRA, a Roth IRA, and you have also a taxable account and you want to be in a position years from now to be able to pull from whichever account gives you the most tax efficient income later on in life. So that's why if you don't have a Roth IRA and you're young and you have a long time horizon, now would be a good time to do a Roth IRA conversion.
We're officially in a bear market and I know that that's really worrying for a lot of not only investors, but everyday Americans, especially with the COVID-19 pandemic. So what's your key piece of advice here?
Well, if you're a longterm investor, let's say you're in your 20s and 30s and you're just starting out and you're investing in your 401k, what you're doing is in essence, dollar cost averaging, which is what you should be doing as an investor. Dollar cost averaging does a couple things. One is it takes the emotion out of investing, right? You're putting in, let's say you're putting in $100 every paycheck into a 401k, and you're doing that regardless of what share prices are. And in essence, what you might be doing for example, is this, let's say you put $100 into your 401k into a stock that's priced at $10 so you get 10 shares and let's say the next period that you put $100 in, and now the price of the stock is $20 so now you're getting only getting five shares. And then let's say the following pay period, you put in $100 into a stock that's now at $5 and you now own 20 shares. So ultimately you have 35 shares and the average price now is $8.50 cents, give or give or take a few cents. And the point of that is you've just lowered your average price per share, which is what you want to do as an investor, right? You want to buy low and sell high. And so...what this period is in essence, you're in a bear market, but you're now buying low and hope in...20, 30, 40 years from now, you'll be selling when those prices are much higher.
Bob, thank you so much for everything that you do, especially right now, cause I know that there's a lot of panic. So I appreciate you joining us today. And guys, of course, head on over to TheStreet.com for more on the markets.