Volatility in the stock market can make investors feel anxious. They may start to panic because it looks like their retirement accounts are losing money. However, during times of volatility, you need to think logically about your choices and avoid making rash decisions you may come to regret.
When the markets fall, you need to focus on the long term rather than get dragged down by the daily ups and downs. You can even make market downturns work for you if you approach the situation with a clear, strategic plan. Read on to learn some tips to keep in mind when it comes to maintaining retirement investments in a turbulent market.
1. Adopt a long-term perspective.
When the market becomes volatile, many of us tend to check our account balances many times throughout the day. Doing this, however, can lead to panic that causes us to sell, thereby locking ourselves into the loss.
While it can be difficult to hold investments until they recover, it is usually the best move. Ignoring the stock market can be difficult with smartphones and social media giving us constant reminders, so it is important to configure these resources in a way that reduces anxiety and decreases any propensity to panic.
You must remember that what matters most is not how the markets look right now, but how they will be at the time of your retirement. This sort of long-term plan will help you remain level-headed as you deal with the market. In a worst-case scenario, if the market dropped close to your planned retirement, you may end up having to work a bit longer to let the market recover before you retire.
2. Perform a portfolio checkup.
You will put yourself in the best position to safeguard your investments when you have a clear understanding of your portfolio. In times of market turbulence, you should take the time to review your investments as well as your financial goals. Ultimately, what worked in the past before the market disruption may no longer work in the future, so performing this sort of checkup puts you in the ideal position to make changes. Also, be sure to double-check your asset allocation and look for tax-saving measures.
At this time, you could also make sure that your diversification is sufficient and that you are not paying any unnecessary fees. Sometimes, it’s possible to diversify too much. For example, if you have stakes in multiple index funds following the same index, it is not true diversification.
All in all, performing a checkup is a great way to expend some energy on the portfolio without making a hasty decision.
3. Avoid selling off investments.
When people start panic selling due to market instability, they are effectively locked into any losses, but if they had just held the investment until the market recovered, they would have lost nothing. By selling, you automatically lose the difference between the sale price and the recovery price.
Investment firm Franklin Templeton looked into the push to sell stocks when the market becomes unstable. The firm found that those who maintain a fully invested portfolio at the end of a bear market have an average total return of 37.1 percent, but those who miss the first six months of recovery because they held onto cash instead had an average total return of only 7.6 percent.
4. Consider investing more.
While it may sound like a contrarian idea to invest more when the market is volatile, you can realize significant returns with this strategy. After all, when the market is down, it is sort of like being on sale. If you have some extra cash, you can purchase these investments when they are low and then wait for them to increase in value precipitously as the market improves.
Not everyone feels comfortable making purchases during a bear market, but when stocks have bottomed out, they have nowhere to go except for up. Of course, you will still need to do your due diligence and make intelligent choices as you invest, but times of uncertainty can be a good chance to fill out your portfolio even more.
5. Consult a professional.
One of the best things to do when the market becomes turbulent is turning to a finance professional. When you are unsure of what moves to make, an expert can account for your goals and anxieties to create a plan that will help you stay on track for retirement.
Financial experts can also help us understand why we need to hold on to our investments or perhaps purchase some new ones. They can also go over the numbers to calm us when we start to panic. The best professionals are always available for regular check-ins and any advice.
Finding a professional becomes more difficult in a bear market, so it is ideal if you establish a relationship before then. Nevertheless, it is not impossible to establish a new, fruitful relationship during times of crisis.