With market volatility running high, even seasoned investors may feel the need to reduce their equity exposure in favor of less-risky investments. Some may have already moved their assets into money market funds or cash. However, experts say that acting on emotion – fear, in this case – and trying to time the market can heavily compromise a portfolio’s long-term value and potentially put your entire retirement in jeopardy. Investment giant T. Rowe Price says, in general, you should stay invested. But here’s what you should do if you’re worried about retiring during these volatile times.
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Experts Say Stay Invested Despite Market Volatility
Experts acknowledge that retirement planning during times of market uncertainty often leads to real concerns about retirement viability. But staying the course is generally more beneficial for your portfolio than pulling your investments from stocks in a down market.
“Investors with a healthy dose of equities in their portfolio are likely to benefit from the long-term growth potential of stocks since, over time, the magnitude of market gains has been significantly greater than that of losses,” write Judith Ward and Roger Young, Thought Leadership Directors at T. Rowe Price.
Despite the negative returns during major market downturns and corrections, rolling 15-year average returns hover reliably around 10%. It’s undeniably difficult to time the market, withdrawing funds right before a sudden crash and putting that money back into equities before the market rises again. If anything, that might be the worst move you can make. Instead, experts recommend sticking to a long-term strategy, allocating assets appropriately for each investor’s time horizon and risk tolerance – no matter how anxious you might feel.
What You Need to Know If You’re Nearing Retirement
When it comes to a closely approaching retirement, however, there are a couple key considerations you should evaluate given such a volatile market. First, for those near or already in retirement, you should ensure you have enough cash reserves. Some retirees may not have the cash to be able to weather several years of negative returns, which may lead to selling assets when stock values are down. So keeping cash reserves to cover one to two years’ worth of expenses helps protect your assets for the long term. If you’re concerned about building up your cash on hand, instead of selling assets you can change how you contribute instead. Direct new contributions to cash or money market accounts, and revisit your asset allocation when the market improves.
Another concern to address is how much money you may be losing as the stock market falls. After the longest bull run in history, you may have allowed your portfolio to have more equity exposure than your target allocation. In this case, you can maintain or modestly increase your allocation to bonds, which can reduce your portfolio risk.
If, on the other hand, you panicked and moved your equity assets into a money market investment, now would be a good time to slowly begin purchasing stocks again.
“The best advice we can give is to not wait too long,” said Young. “There will be no all-clear signal to let investors know that markets have bottomed.”
In fact, the people most affected by the 2008 financial crisis were those investors who jumped out of stocks and never got back in. T. Rowe Price research shows that buying into stocks during a downturn historically improved results over the following year, even if that adjustment was made a few months before or after the official market bottom.
Investors who are nearing retirement have cause to worry about their retirement plans. High volatility in the stock market affects all investors – especially those on a fixed income. But T. Rowe Price experts say not to panic and keep your investments in a suitable mix for your risk tolerance and time horizon. Instead, focus on building your cash reserves by contributing to money market accounts and rebalancing your investment portfolio by buying bonds to reduce your risk exposure or buying more stocks if you liquidated early. Eventually the market will recover and setting yourself to take advantage of the rebound will help you guard your retirement assets for the long term.
Retirement Planning Tips
Not sure if you have enough saved for retirement? For a solid, long-term financial plan, consider speaking with a qualified financial advisor. Finding one doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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