How to Survive Today's Market Volatility

There’s a good chance you are feeling concerned about recent market volatility especially those already retired or about to retire.  Between Feb 20 and March 23 of this year, the markets experienced a 30 percent drop. While they have recovered somewhat since then, the volatility may not be over.

 Is investing riskier than usual these days? Or does it just feel that way because of the constant bombardment of information. If there is such a thing as “normal” in this world of ours, risk is certainly built into the definition. Retirement accounts like 401(k)s and IRAs may be at a lower value than they were just a few months ago, savings accounts are generating less interest, and the ups and downs are leaving investors nervous. Taken together with the pandemic the unusual economic upset and an upcoming presidential election, the question becomes: what should you be doing next? Below we are discussing four things you could be doing now to help recover from a market crash. 

 #1: Review Your Financial Plan

Watching the market crash, or seeing stocks drop overnight, can cause anxiety - and understandably so. The first thing to do when faced head-on with a market downturn is to pause, take a breath and review the financial plan you and your advisor already have set in place. 

 Often times, advisors develop financial plans or investment strategies that prepare for the unexpected - whether it’s a market downturn, death in the family, loss of a job, etc. Turning to your advisor and reviewing your plan amidst a market crash can be a comforting first step in remembering not all is lost. Doing so can serve as a reminder that now is not the time to make hasty, emotionally-driven decisions. Rather, now is the time to focus on your personal economy and what you can do to rebuild or reallocate what you need throughout retirement.

 #2: Decide Whether or Not to Continue Investing 

You’ll likely think about whether or not continuing to invest in the market is in your retirement’s best interest. Pulling out now may be your first instinct, but that may not be in your long term best interest. We don’t mean to downplay the real influence world events can have on your personal and financial well-being, but the markets tend to price in the ebbs and flows of unfolding news far more quickly than you can trade on them with consistent profitability.  Instead, once you’ve built a globally diversified, carefully allocated portfolio that reflects your personal goals and risk tolerances, you’re usually best off disregarding both the good and bad news that is unfolding in real time.

 While history is no guarantee of future performance, historically bear markets do recover. If you have the flexibility (and years) to do so, you may be advised to ride the downward trend out in hopes that you can recoup your losses when the market eventually stabilizes and begins to add gains {see The Current Market Decline in Context}. In many ways, managing your investments is about managing the risks involved. Again, this decision is one that should be made with a trusted financial partner, and in tandem with the rest of your retirement income strategy.

 #3: Rebalance and Reassess Your Risk

It’s one thing when we imagine risk and its potential impact on our lives and our investments. It’s quite another when it really happens. If you manage to hold firm despite your doubts, you may be okay in the end, but it might inflict far more emotional distress than is necessary for achieving your financial goals. Who needs that?

 This could be an ideal opportunity to reassess your personal tolerance for risk. If you’re allocating assets in a similar manner as you were while working full-time, for example, you may find that rebalancing your portfolio is well past-due. To learn more about our approach to risk and something called the “Risk Number” (watch video). It’s a quantitative way to pinpoint how much risk you want, how much risk you currently have in your portfolio, and how much risk you need to take to reach your goals.

At a time like this, it may be tempting to change your asset allocation in favor of more conservative (or aggressive) mix. And while that may be the right option, you want to be logical and confident in this decision, as removing risk altogether could mean missing out on crucial returns later down the line. As is true for most portfolios, yours is likely to contain a mix of fixed income and stocks.

 One of the ways we help you achieve your financial goals and objectives is by tending to an investment plan with the appropriate risk required but also with regard to your unique risk capacity and risk tolerance. Do you know your personal risk score? Get a free analysis.

 4: Adjust Your Budget 

You can’t control the market, but you can control other aspects of your financial life - including your spending and saving strategies. If you need to, take a look at your weekly or monthly budget and see where adjustments can be made. You don’t want to pull from your investments and/or sell your assets if minor lifestyle changes will suffice. Whether that means eating out less or reducing the number of trips you budget for each year, evaluate ways in which you can reallocate “fun” money to cover necessities. And as you do, remember to include contributing to your savings account or emergency fund as a top priority. 

 When a market crash occurs, it can feel like the future of your finances is out of your control. But with a financial partner by your side, these steps can provide both a well-thought-out plan and peace of mind for your retirement.