Market corrections and volatility during retirement can be unnerving, but they are part and parcel of being a stock investor in today’s markets. In the long term, research shows that the stock market has delivered positive returns.1 However, in the short term, markets can fluctuate dramatically due to many factors. For instance, in the 20-year period between 1995 and 2014, the S&P 500 returned 9.9 percent2, but during that same period, the S&P 500 suffered multiple years of negative returns:
- Between March 2000 and October 2002, the S&P 500 lost 49.2 percent.3
- Between October 2007 and March 2009, the S&P 500 lost 56.4 percent.4
During these downturns many investors lost significant portfolio value, and some missed out on the market recoveries that followed by failing to stay invested. Here are a few guidelines that can help you make it through volatility in retirement.
Build volatility into retirement assumptions
We can’t predict market movements with any certainty, but we can expect a retirement lasting 20 or 30 years to see periods of decline. Retirement strategies predicated on steady returns may fall short when markets swing. Sophisticated software that tests a variety of market conditions can help create retirement strategies that are designed to weather the bad times.
Choose a suitable mix of investments for your objectives
One of the most powerful tools investors use to help mitigate the effects of downturns and volatility is a proper asset allocation strategy built around your needs. We don’t believe in cookie-cutter strategies; your retirement portfolio should be as individual as you are. Diversification —mixing a wide variety of investments inside your portfolio— may help VOLATILITY and MARKET DECLINES during retirement are INEVITABLE.
Stay flexible and keep cash on hand
Unlike younger investors, retirees can’t always just wait out periods of volatility. Taking withdrawals when your portfolio has lost significant value can harm your overall retirement picture by depleting your savings, so it’s critical to build some flexibility into your strategies. One way to help you avoid selling investments that have lost money is to have a significant cash reserve.
Work with a Professional
There are many benefits to working with a financial professional, many of which come into play when markets decline or become volatile. A financial professional can help you
- understand your personal risk tolerance and develop personalized objectives and strategies,
- create a suitable mix of investments and stay diversified*,
- avoid emotional decision-making and make informed choices,
- stay informed about changing market conditions and how they may affect your retirement.
The Bottom Line
Keep calm and carry on. Volatility and market downturns are a normal part of market cycles. As a retiree, you can expect to live through many periods of volatility and perhaps even a bear market or two. We cannot predict the timing or duration of these downturns, but research and experience have taught us that flexible, personalized strategies built on rigorous testing can help investors pursue success in many market environments. If you have any questions about how volatility may affect your retirement picture, please contact us to discuss your personal situation.
Footnotes, disclosures, and sources: These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker/ Dealer, or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker/ Dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information. *Diversification cannot guarantee a profit or entirely eliminate the risk of investment losses. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results. The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in an index. Consult your financial professional before making any investment decision. We have not independently verified the information available through the following links. The links are provided to you as a matter of interest. We make no claim as to their accuracy or reliability.
1) “Annual Returns on Stock, T-Bonds, and T-Bills: 1928–Current.” NYU Stern. http:// pages.stern.nyu.edu/~adamodar/New_Home_ Page/datafile/histretSP.html [Accessed 6 November 2015]
2) “Guide to the Markets®.” J.P. Morgan. https://www.jpmorganfunds.com/ blobcontentheader/202/900/1158474868049_ jp-littlebook.pdf [Accessed 6 November 2015]
3) Yahoo Finance. S&P 500 price return between March 24, 2000 and October 9, 2002.
4) Yahoo Finance. S&P 500 price return between 10/9/2007 and 3/5/2009.