How to handle market volatility at every stage of retirement saving

05-11-2021

Historically markets rise, fall a bit, then rise again. That volatility may be difficult to stomach, particularly for the risk averse, but it’s also what creates buying and selling opportunities (another axiom: buy low, sell high!) for savvy portfolio managers.

Still, it’s not always easy for retirement plan participants to know what to do when the market starts to fall. Or when it rises for an extended period. Or when it remains stagnant. What’s more: how one handles market volatility at the beginning of one’s career will very likely be different from how it’s handled toward the end. That’s why we laid out these easy-to-navigate guidelines for how to handle market volatility—no matter your age.

20s-30s

Embrace volatile markets.

If you’re young and just starting to invest—which you likely are if you’re in this age cohort—then you’re best poised to benefit from market lows. Essentially, you have the power to buy low… which will help you take advantage of upswings when the market inevitably turns back around.

Also, this is when you’re likely to benefit most from compound interest, so don’t put off your investment strategy, no matter what the market is doing.

Pro tips:

Start now. Open that retirement account, boost your emergency savings fund, and start paying down debt. The earlier you take control of your money, the more likely you are to benefit from market boons, reduce total interest paid, and be prepared when unexpected emergencies strike.
Stay invested. By selling stocks, bonds, or mutual funds, you’re essentially locking in losses that would have appeared only on paper—and would likely have rebounded with the next market upswing. By selling, you lose out on that opportunity.
Don’t panic. The market rises and falls as part of its natural course. Some boons and larger than others, as are some corrections. Those with 30+ years left until retirement are most able to weather those market twists and turns.

40s-50s

Get out ahead of market volatility.

These are the prime income-earning years, when you’re likely to have the greatest savings power. This is your opportunity to stash away as much cash as possible, while it still has a few decades to compound.

Still, as you draw closer to retirement, it’s also time to start diversifying your portfolio, adding or increasing your allocation to safer investment vehicles like bonds or bond-based mutual funds.

Pro tips:

Start diversifying into safer investment options like bonds, bond mutual funds, CDs and money market funds. These more stable investment options tend toward less drastic movements as markets rise and fall, which can help protect your portfolio from dramatic peaks and valleys.
Consider other principal-protecting options like an annuity or a life insurance policy, particularly if you have family who is dependent upon your income. The younger and healthier you are, the more likely you are to qualify for a lower rate.

60+

Create a more risk-averse investment strategy.

As you near or enter retirement, it’s time to start protecting the assets that will carry you through those golden years.

Pro tips:

Create three buckets of investment money that can carry you through different phases of your retirement. 1. A five-year bucket for short-term income, intended to fund immediate needs. 2. An intermediate bucket, invested in a moderate risk portfolio, that can continue to grow for the next six to 15 years. 3. A long-term bucket that can be invested more aggressively and won’t be tapped for 16 years or more.
Build a retirement budget that can carry you through the next few decades. Include fixed expenses like a mortgage payment, payments that may change like healthcare costs or real estate taxes, and option items like dinners out and vacations. This list will act as your roadmap as you venture into your non-income-earning golden years.
Consider other income-producing assets like real estate, dividend-paying stocks, or a variable annuity. The greater number of streams of income you own, the greater your overall financial stability is likely to be.

In the end, we all handle risk—and market volatility—differently but, over time, it’s often easiest to weather the ups and downs with a solid plan to follow, particularly as you pass from one life phase to the next.