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Finance

Protect Your Retirement Against Market Volatility

by Carolyn Wright-Rupert October 2, 2015October 2, 2015
written by Carolyn Wright-Rupert October 2, 2015October 2, 2015

money-37899089As an investor, you are well aware of the fact, over the short term, the financial markets always move up and down.

During your working years, you may feel you have time to overcome this volatility. And you would be basing these feelings on actual evidence—the longer the investment period, the greater the tendency of the markets to smooth out their performance. But what happens when you retire? Won’t you be more susceptible to market movements?

You may not be as vulnerable as you might think. In the first place, given our growing awareness of healthier lifestyles, you could easily spend two, or even three, decades in retirement—so, your investment time frame isn’t necessarily going to be that compressed.

Nonetheless, it is still true time may well be a more important consideration to you during your retirement years. So, you may want to be particularly vigilant about taking steps to help smooth out the effects of market volatility. Toward that end, here are a few suggestions:

  • Allocate your investments among a variety of asset classes. Of course, proper asset allocation is a good investment move at any age, but when you are retired, you want to be especially careful you don’t over-concentrate your investment dollars among just a few assets. Spreading your money among a range of vehicles—stocks, bonds, certificates of deposit, government securities and so on—can help you avoid taking the full brunt of a downturn, which may primarily hit just one type of investment. (Keep in mind, though, while diversification can help reduce the effects of volatility, it can’t assure a profit or protect against loss.)
  • Choose investments which have demonstrated solid performance across many market cycles. As you probably have heard, past performance is no guarantee of future results, and this is true. Nonetheless, you can help improve your outlook by owning quality investments. So, when investing in stocks, choose those with actual earnings and a track record of earnings growth. If you invest in fixed-income vehicles, pick those considered investment grade.
  • Don’t make emotional decisions. At various times during your retirement, you will, in all likelihood, witness some sharp drops in the market. Try to avoid overreacting to these downturns, which will probably just be normal market corrections. If you can keep your emotions out of investing, you will be less likely to make moves, such as selling quality investments, merely because their price is temporarily down.
  • Don’t try to time the market. You may be tempted to take advantage of volatility by looking for opportunities to buy low and sell high. In theory, this is a fine idea—but, unfortunately, no one can really predict market highs or lows. You will probably be better off by consistently investing the same amount of money into the same investments. Over time, this method of investing may result in lower per-share costs. However, as is the case with diversification, this type of systematic investing won’t guarantee a profit or protect against loss, and you will need to be willing to keep investing when share prices are declining.

It is probably natural to get somewhat more apprehensive about market volatility during your retirement years. But taking the steps described above can help you navigate the sometimes choppy waters of the financial world.

For more information, contact Carolyn Wright-Rupert at (480) 985-2651.

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