Surviving Market Volatility
The stock market has been on a tear lately. Unfortunately, not a very good one. One question I am often asked in times of market volatility is, what should I do? It’s human nature, the market is down, your investments are getting beat-up, and you feel some action needs to be taken.
My advice in times like these is to - do nothing. First of all, it’s too late to react, and secondly, you can never time the market. As long as your retirement investments are built for the long-term and well diversified, you should be able to ride-out times like these. Below are three tips to help you stomach big swings in the market. Believe me; I use these myself.
It's all about Diversification
The best defense during market volatility is a diversified portfolio. So, what does that mean? A portfolio that’s built with the right combination of stocks and bonds. Stocks generate long-term growth and bonds generate long-term income.
If there is a bull market (things are going up), stocks provide growth in your portfolio. When there is a bear market (things are flat or going down), bonds provide protection and steady income to your portfolio.
Also, having the right mix (or ratio) of stocks and bonds will help minimize the impact of large market swings. This mix should adjust over time depending on your age and risk tolerance. One popular strategy for implementing a diversified portfolio are target date mutual funds. These funds are based on your age and the allocation of stocks and bonds adjust over time. They are a good option if you are looking for a set-it and forget-it type investment strategy. Just make sure you are investing in a high-quality target date fund. Check out morningstar.com for their analysis of target date funds.
Retirement Savings are for the Long-Term
Remember, your retirement portfolio is here for the long-term. If you are in the accumulation phase of retirement, the best strategy is to ignore the market. I know this is hard to do but, if you are 10, 20, 30 years from retirement, your portfolio should rebound from any short-term corrections. Just ensure, you have a well-diversified portfolio (remember tip #1 above).
If you are nearing or in retirement, market corrections are a little more concerning. After all, your retirement paycheck is dependent on your nest egg. Once again, make sure you have a portfolio built to withstand short-term losses where you do not have to sell stocks to generate income. Here is a previous post on how to create a portfolio for generating a retirement paycheck.
Leverage Your Financial Professional
Talk to your financial professional. First, they can be a calming voice in times of uncertainty. Think of them as your financial therapist. They will help you understand the impact of the recent volatility on your retirement savings and ensure you have a well-diversified portfolio built for the long-term.
Remember, all portfolio’s need adjusting over time as we age and our risk tolerance changes. If you are unsure about the make-up of your portfolio, give your financial professional a call. After all, their job is to help you save for retirement.
I hope these tips are helpful as we endure some crazy times in the market and our country. Remember, now is a great time to check-in with your financial professional to make sure you are prepared mentally and from an investment perspective. If you do not have a financial professional, now is a great time to find one. Good luck and hang-in-there!
How are you handling the recent market volatility? Have you called your financial professional? If so, what advice did they have? Please share your perspective with the WorkFlowRetirement Community.
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Good luck and let's #RetireHappy.