The story dominating news cycles this year has been the fluctuating stock market. Interest rates continue to rise, inflation is reaching levels not seen in decades, and supply chain issues brought on by the pandemic continue to plague industries across the globe. Many investors are unsure what their next move should be given the constant changes in the stock market. For investors who are nearing retirement, this period of market volatility is even more stressful.
Younger investors will have an easier time focusing on the big picture. The current environment is relatively normal when you take a long-term view of the stock market’s behavior – on average, there is a down equity stock market one out of every three years. While portfolios might take a near-term hit, the downturn is no cause for significant concern if you have a strategic investment plan in place. In fact, you will likely see minimal impact over the long-term.
But what about individuals considering or nearing retirement during a downturn like we’re currently experiencing? Retirement is an exciting time of your life, but it’s a decision that requires a lot of consideration and planning. While you navigate the implications of a volatile stock market on this significant life event, we have three tips to provide you with some actionable next steps and peace of mind.
1. Keep Calm and Maintain Perspective
Even with a booming stock market, retirement can bring about feelings of anxiety and trepidation in any investor. These feelings are natural whenever you’re about to make a big change, and retirement does require some readjustments as you shift away from a rhythm of steady paychecks.
If you’re concerned about your portfolio, now is an opportune time to meet with your financial advisor. Together, you can review the steps you’ve already taken to prepare for stock market downturns, run new cash flow projections based on your known spending, and ensure you have three to five years of distributions in cash and bonds so that you don’t have to sell stocks when they are down. Doing so can help ease your mind by getting a preview of how your lower investment base will support you over time.
It’s important to remember that this period of market volatility is normal. The stock market naturally ebbs and flows. Whatever we’re experiencing now will not last forever and should not be a cause for halting – or even delaying – your plans.
2. Trust Your Investment Strategy
In times of uncertainty in the stock market, it can seem appealing to sell your holdings and buy back when you feel the time is right. But that’s actually the last thing you should do, especially if you’re nearing retirement. That strategy rarely works and requires two incredibly timed decisions – you have to sell at the right time and enter back in at the right time. Chances are you already missed the selling window.
Rather than making rash decisions about your portfolio and your future, this is the time to lean on your financial advisor and the strategy you’ve established together. Your advisor has already accounted for this type of stock market activity in your portfolio strategy and built it into your investment plan. When calculating projections of how far your savings will go in retirement, financial advisors factor in inflation and varied rates of return to ensure that your portfolio will provide for your financial security.
Changes in the stock market are all part of the ride for investors. A thoughtful and personalized portfolio strategy will help you navigate the downturns with little impact on your broader, longer-term financial goals. Strategy always wins, and your advisor is there to provide peace of mind and clarity.
3. Consider the Silver Lining
Market volatility certainly doesn’t evoke much optimism. However, it does present some opportunities to reevaluate your portfolio strategy. If you’re looking to retire in the next one to two years, the current market environment is a perfect opportunity to put your financial planning strategy to the test. Running projections now will provide insight into whether or not your portfolio will be able to support you long-term even when your assets are down. This exercise can provide fast relief and comfort if your portfolio withstands the test.
If you’re still five plus years away from retirement and focused on growing your savings, the current environment presents an opportunity to consider buying into the stock market. Your financial advisor will be able to help you take advantage of these opportunities, while aligning them with your current strategy and risk tolerance. This strategy won’t put a windfall in your pocket in the near-term, but it can reap rewards later down the line once the stock market rebounds.
Your Partner in Retirement
As you approach retirement, it should be a joyful time in your life. Wescott Financial Advisory Group is here to help make that a reality by providing valuable peace of mind knowing your financial future is in capable and experienced hands. For over 35 years, Wescott advisors have been helping clients successfully plan for retirement and safeguarding their financial security for years to come. Working hand in hand, we’ll help you ensure your portfolio strategy is optimized to withstand market volatility and reach your retirement goals.
Curious to learn more about how our advisors can help you confidently retire in spite of market volatility? Click here to speak with a member of our team directly.
