Investors came off a difficult year in 2022 – stocks fell into a bear market (defined as a decline of 20%+ from peak highs) and the bond market lost significant ground, as well. The stunning jump in inflation after years of very low interest rates made matters worse. Watching your investments and the value of the dollar depreciate simultaneously wasn’t easy – and the prospect of more volatility ahead has many investors nervous. As a financial advisor, I’ve fielded many of the below questions from my clients that you may also be contemplating. Keep in mind that while there is no single solution that applies to all investors, there are some general guidelines, based on where the markets stand today, and the historical record, that may be helpful.
Q: How should I cope with market fluctuations that are affecting my retirement savings?
A: If you’re within five years of your retirement date or already retired, be aware that you have less time to make up for losses in your portfolio. You may want to re-evaluate your risk tolerance, projected income needs, and investment strategies. It may make sense to pursue multiple strategies, seeking to grow a portion of your nest egg while protecting dollars you will need to tap more immediately (in the next 3-5years).
If you are more than five years from retirement, focus on mitigating risk in your portfolio with high-quality investments and income-producing securities. If you have available cash to invest, do so using a systematic approach, investing a portion monthly over 6-12 months. By dollar-cost averaging in this way, you may be able to offset some of market’s inherent unpredictability.
If retirement is ten or more years away, work on growing your nest egg. Time is still on your side. View the market’s recent downturn as an opportunity to position your money in quality assets that are available at more attractive prices. Although markets will experience downturns from time to time, keep in mind that over rolling ten-year periods, the broad stock market (as measured by the S&P 500, an unmanaged index of stocks) has always moved higher.
Q: What should I do if I have not yet invested or am fairly new to it?
A: If you’re new to investing, chances are you have a longtime horizon before retirement and can ride out the short-term bumps in the stock market before you’ll need to start withdrawing assets. Start by finding ways to save even small sums on a regular basis. This includes contributing to your workplace retirement plan such as 401(k) or 403(b) accounts and putting money to work monthly in a traditional or Roth IRA. The sooner you start investing, the better your opportunities to accumulate wealth.
Q: I’m very uncomfortable with the markets and volatility these days. How can I overcome that?
A: While you may wonder whether you should invest in or continue to “ride out” the challenging market, it’s important to stay invested. You want to be positioned for a recovery, which typically occurs without warning. Keep in mind that in the first year after the low point of the last nine bear markets, the S&P 500 returned an average of nearly 50%.
A good place to start is to speak with a financial advisor who may be able to help you steady the boat. Your advisor can help make sure that your portfolio is positioned to meet your key financial goals and is consistent with your risk tolerance level.
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