The financial landscape is constantly changing, and market volatility can provide difficulties for retirees seeking financial stability at any moment.
Retirement is a big life milestone that many of us anticipate. We should be able to enjoy our hard-earned nest egg and live comfortably after years of hard work. But far too many of us make the mistake of taking our retirement savings for granted. Retirees in the United States continue to report having enough money to live comfortably. Overall, 43% of non-retirees believe they will have enough money to live well in the future, while 77% of retirees – unchanged from last year – believe they do now.
This blog will explore strategies to help navigate market volatility and secure a peaceful retirement. Here’s what you need to know.
What exactly is market volatility?
The degree of change or instability in the values of financial assets within a given market is referred to as market volatility. It depicts the huge price fluctuations that occurred in a short period of time. Market volatility can be caused by a variety of variables, including economic conditions, geopolitical events, and unexpected news. High levels of market volatility can cause fast price swings, making forecasting the future direction of asset prices challenging.
According to an Allianz Life poll, 77% of Americans expect the market will remain turbulent through 2023. In addition, more Americans are preparing for the long haul. If markets remain volatile through 2023, 65% say they will change their retirement and investing plans.
Asset price fluctuations can erode retirement savings, perhaps leading to a reduced income stream or even running out of money early. To assist lessen the impact of market volatility, retirees must implement methods that create a buffer during difficult times.
Diversification Protects Against Volatility
Diversification is a tried-and-true approach for shielding your retirement assets from market volatility. Spreading your investments across several asset classes can help lessen the risk of severe losses during market downturns. Diversification allows you to better capture gains in certain sectors while minimizing potential losses in others, resulting in a more stable portfolio. Here are some of the reasons why diversification is such an important approach for navigating market turbulence in retirement:
Spreading Risk: By investing in a diverse range of assets, you can lessen the impact of a single asset’s bad performance on your whole portfolio.
High Potential Returns: The return patterns of various asset classes differ. Bonds give security and income while equities may deliver larger long-term gains. Diversification allows you to harvest benefits from several asset classes and boost your investment results.
Smoothing Out Volatility: By reducing the impact of significant market changes on your portfolio, diversification can help smooth out the financial bumps. While one asset class may be volatile, others can lead to a more stable and less volatile overall portfolio performance.
Asset Allocation entails dividing your investments among several asset classes based on your risk tolerance, financial goals, and time horizon. You may assist in aligning your asset allocation with your retirement objectives by diversifying your portfolio, and balancing risk and possible returns.
You can lower the risk of substantial losses and enjoy a more stable portfolio by diversifying your assets across asset types. A financial advisor can help you examine and rebalance your portfolio on a regular basis to ensure it remains aligned with your long-term goals.
Regular portfolio reviews and rebalancing are essential for coping with market volatility in retirement. Regular portfolio reviews allow you to analyze your progress toward your financial goals and ensure that your portfolio has not deviated from the asset allocation that best suits your risk tolerance and time horizon. When performing a portfolio review, keep the following items in mind:
Aligning with Retirement Goals: Your investing strategy should reflect your personal retirement goals, whether they are to maintain a certain standard of living or to leave a legacy for future generations. Regularly reviewing your portfolio allows you to realign your investments and make any required modifications.
Risk Tolerance Analysis: Market volatility can have a significant impact on your portfolio, requiring you to adjust your risk exposure accordingly. Examine your comfort level with market volatility and whether your portfolio reflects an appropriate degree of risk for your stage of retirement.
Rebalancing for Stability: When one asset class outperforms another, your portfolio may become unbalanced. To restore the appropriate asset allocation, rebalancing may entail selling some of the outperforming assets and purchasing more of the underperforming ones. This approach ensures that your portfolio is well-diversified and able to withstand market volatility.
Remember that regular portfolio assessments and rebalancing should be done with the help of a professional financial advisor who understands your retirement goals. Regularly reviewing your retirement portfolio with your advisor is only one of many actions you can take toward financial freedom and confidence.
Accept Long-Term Investing
Retirement is often a long-term endeavor that can take decades. It is critical to adopt a long-term investment mindset that focuses on compounding. Compounding is the process through which your investment returns generate further returns, facilitating exponential development. Short-term market swings may produce temporary dips, but history shows that the market will eventually rebound.
Consider this: if you had invested in the stock market during severe downturns, such as the dot-com bubble burst in 2000 or the 2008 global financial crisis, you would have seen significant short-term declines.
Investors who stuck with it and stayed invested got the benefits when the market resumed its upward trend in the long run.
Focusing on your long-term goals allows you to weather short-term turbulence without panicking or making rash investing decisions. It is critical to remember that attempting to time the market is complex and frequently detrimental. Maintaining a disciplined attitude and remaining invested, on the other hand, can position you to capitalize on the market’s long-term growth potential.
Keep an emergency fund on hand.
Emergency funds serve as a safety net for retirees who face unforeseen bills or income disruptions as a result of market volatility. Healthcare costs are an excellent example of a cost that varies with age. Someone over the age of 65 is 70% likely to require long-term care services and support throughout their remaining years.
Maintaining an emergency fund that covers at least six to twelve months of living expenses can be beneficial in the long run. Having this buffer allows you to weather market downturns without having to withdraw from your long-term assets at inopportune times. This financial cushion provides peace of mind and allows retirees to handle difficult times without jeopardizing their retirement plans.
Seek Professional Help
Navigating market volatility in retirement can be complicated and difficult. Consider working with a financial advisor (ideally a Fiduciary) whose services include tried-and-true retirement income planning strategies. Our team of professionals at Goodman Green Wealth Management can assist you with the following:
Assist you in understanding and maximizing employer matching contributions.
- Assist in increasing the diversification of your investments.
- Provide advice on the best form of retirement account (Roth, Traditional IRA).
- Assist you in taking advantage of Iowa state tax benefits.
- Identify potential portfolio risks and offer mitigation solutions.
Volatility in the market may be emotionally draining, especially for retirees who rely on their investments for income. Working with a Fiduciary advisor, such as Matthew P. Johnson, provides you with high-quality investing advice and guidance. We provide you with the tools you need to make sound investing decisions.
Market volatility is an unavoidable component of investing, and retirees must navigate it prudently to protect their financial security. Seeking professional counsel can assist you in weathering the storm of market volatility and staying on track for retirement. You may overcome the hurdles offered by market swings with appropriate planning and a well-thought-out strategy.
We at Goodman Green Wealth Management are dedicated to providing our customers with great advice and service. Our trained advisors are available to assist you in navigating market turbulence and creating a safe financial future. If you’re ready to start your retirement investment journey, contact us today to set up a free consultation. call us : + 1 312-586-7373