Three Things to Consider Doing With Your Retirement Plan During Market Volatility

Image: Three Things to Consider Doing With Your Retirement Plan During Market Volatility

Retirement planning isn't easy—you can make all the right decisions, but your savings are always susceptible to market volatility. Unexpected world events can influence your savings by seemingly drastic amounts, causing an unsettling feeling that can leave you questioning if your financial future is secure.

In times like these, it’s important to remember that these fluctuations are just that—fluctuations. Markets operate in cycles, which include sustained periods of negative market returns (bear market), recovery (to the prior peak), and a sustained period of positive returns following the recovery (bull market).

When a bear market hits, retirement account balances may drop by several years' worth of contributions. It’s a scary thing to experience—and many retirement plan participants will switch to a new investment they believe is less volatile. However, this might not always be the best course of action.

How to manage stock market volatility as an investor

If the market enters a negative cycle, remember that your retirement plan was set up for the long term—it was established to adapt to short-term fluctuations. All plans require adjustments over time, and your retirement plan is no different.

Here are three things you can do now to help make those adjustments. 

  1. Determine your risk tolerance

Assess how you feel when the market enters a negative cycle or your account loses short-term value—or at the very least, critically analyze how you would feel if your account value were to drop 10 to 25 percent. Are you comfortable with this level of risk? Getting a better understanding of your personal risk tolerance can help you select the right investments for your retirement account.

  1. Align your investments with your risk tolerance

When it comes to retirement savings, there’s no one-size-fits-all investment solution—some individuals don’t mind a large swing in value, while others prefer to invest more conservatively. You have to be comfortable with how you invest.

If your investments are too volatile, you might panic if markets turn negative, which might lead to reactive decisions that are not in your best interest long-term. Similarly, if your investments aren’t risky enough, you might try to earn those additional savings in potentially irresponsible ways. Work with your plan’s advisor to make sure you’re invested in a way that suits you.

  1. Continue making contributions

The primary driver of your retirement account balance is the contributions you put in it. If you stop contributing during bear markets, you may miss a sustained period of growth. In fact, increasing your contributions during this time could help you take advantage of these positive economic conditions.

Planning for retirement isn't easy, but we can help. Contact us today to learn more about your retirement plan investment options.

 

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