Market corrections and volatility during retirement can be unnerving, but they are part and parcel of being a stock investor in today’s markets. In the long term, research shows that the stock market has delivered positive returns. However, in the short term, markets can fluctuate dramatically because of many factors. For instance, in the 20-year period between 1995 and 2014, the S&P 500 returned 9.9 percent, but during that same period, the S&P 500 suffered multiple years of negative returns:
- – Between March 2000 and October 2002, the S&P 500 lost 49.2 percent.
- – Between October 2007 and March 2009, the S&P 500 lost 56.4 percent.
During these downturns, many investors lost significant portfolio value, and some missed out on the market recoveries that followed by failing to stay invested. Here are a few guidelines that can help you make it through volatility in retirement.
Volatility and Market Declines During Retirement are Inevitable.
We can’t predict market movements with any certainty, but we can expect a retirement lasting 20 or 30 years to see periods of decline. Retirement strategies predicated on steady returns may fall short when markets swing.
Choose a Suitable Mix of Investments for Your Objectives.
One of the most powerful tools investors use to help mitigate the effects of downturns and volatility is a proper asset allocation strategy built around your needs. We don’t believe in cookie-cutter strategies; your retirement portfolio should be as individual as you are. Diversification, mixing a wide variety of investments inside your portfolio, may help smooth out some of the highs and lows of markets, though it can never completely eliminate risk or guarantee a profit.
Avoid Emotional Decision-Making.
If you opened a newspaper or turned on the television during the latest period of volatility, you probably saw headlines like “Is the bull market over?” and “Are we headed for another bear market?” as well as other hyperbole designed to capture eyeballs. It’s stressful to wonder about the financial health of your retirement when markets swing. However, the key to keeping your cool during periods of volatility is to remember that market swings are a normal part of market cycles.
During periods of volatility, it’s a bad idea to look at your accounts every day or listen to the talking heads on television. Doing so can increase your anxiety and lead you to the critical mistake of emotional decision-making. While it can be tempting to make changes to your investments in response to market movements, research shows that investors tend to make poor investment decisions when driven by emotion.
Stay Flexible and Keep Cash on Hand.
Unlike younger investors, retirees can’t always just wait out periods of volatility. Taking withdrawals when your portfolio has lost significant value can harm your overall retirement picture by depleting your savings, so it’s critical to build some flexibility into your strategies. One way to help you avoid selling investments that have lost money is to have a significant cash reserve.
The Bottom Line
Keep calm and carry on. Volatility and market downturns are a normal part of market cycles. As a retiree, you can expect to live through many periods of volatility and perhaps even a bear market or two. We cannot predict the timing or duration of these downturns, but research and experience have taught us that flexible, personalized strategies built on rigorous testing can help investors pursue success in many market environments.
By James D. Hoyt, CPWA, CFS
Diversification cannot guarantee a profit or entirely eliminate the risk of investment losses.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.
The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
You cannot invest directly in an index. Consult your financial professional before making any investment decision.
James D. Hoyt is a Certified Private Wealth Advisor, Certified Fund Specialist and the Founder/CEO of Ascendant Financial Solutions, Inc. Hoyt and his wife, Kathy, enjoy community non-profit volunteering, golf, hiking and road biking. Both believe that “we are stronger as a community than as individuals.”
Securities and Advisory Services offered through Geneos Wealth Management, Inc. Member FINRA/SIPC. Advisory Services offered through Ascendant Financial Solutions.