The stock market is volatile. The stock market will make corrections. The stock market constantly changes.
These are all things that you have heard before and probably internalized to a certain degree. In your head, you know that the stock market will correct itself and your investments may lose value. But when you are in retirement, you probably have a new outlook on these foregone market conclusions.
As a retiree, you don’t have the investment horizon that you did when you were younger which may cause more anxiety and worry over the ups and downs of the stock market. We have seen so many clients put themselves through added stress over market fluctuations and make emotional decisions that have led to serious financial consequences.
Today, we want to talk about how retirees can best handle market fluctuations in retirement and remind you that your advisor team at TFS is there to support and guide you through each season of investing.
1. Evaluate your plan
Everyone handles stress differently. One thing that has always worked for me is gathering facts. When faced with a difficult problem I always start by asking myself a couple of questions. What do I know about the situation and how am I currently prepared to handle it? This helps me see what my plan is and if I have prepared myself to withstand the issue at hand.
You can apply this same philosophy to your investments. Start by taking a look at your current investment plan and walk through some questions.
- How are your investments allocated?
- Is your investment plan more conservative or aggressive?
- How does your market risk tolerance align with your investment goals?
- In what ways does your plan support your current and future needs?
- How does this market correction impact your long-term investment and financial goals?
Understanding your specific plan and projections will give you a clear and realistic sense of where you really are in your investment journey not where the news or friends or others suggest you might be.
Collecting this data can give you a broader perspective on your financial picture. Any market correction is just one step in a larger, more comprehensive plan. Seeing beyond one setback can provide a deeper understanding and perspective on the financial plan you and your advisor have worked so hard to create, implement, and manage.
2. Name your fear
Are there areas of your strategy that scare you? What are they? Let’s take that a step further to get underneath those feelings of fear or stress. Where are your feelings coming from? What force or action has inspired that emotion? Is that source based on fact or fiction?
Sometimes it is easy to let news stories or popular opinions or even your own biases get in the way of your financial plan. By confronting your questions, assumptions, and fears you will be better able to decide if any action needs to be taken or how you can best overcome it. Sometimes that might be taking further action and sometimes it may mean doing nothing at all.
When it comes to investments, specifically, it is important to remember that you are playing the long game. With a market downturn, you may lose a battle but by maintaining your current plan and not making emotional choices you can still win the war.
When you address the fear you are facing head-on, you are able to look at it from a more objective point of view. Fear is so subjective, what scares you might not scare someone else making it even more important to understand your fear, uncover the meaning, and create a practical solution for moving forward.
- Normal process is to put in “stressors” that make it more conservative
- Have 7 specific areas where people test against – hyperinflation, lack of return, SS/Pension cuts, high medical bills, die early/live long
3. Diversify your assets
Diversification isn’t just for your portfolio. This principle also applies to your general retirement income plan. You can have many sources of income in retirement such as,
- Investments (mutual fund, ETFs, general portfolio, retirement-specific accounts)
- Social Security
- Part-time job income/encore career
- Other (annuities, real estate, etc.)
Though the stock market is an important area of your financial plan it isn’t the only one. Creating a strong plan for your other sources of income in retirement like cash or rental properties can help generate the extra income you need when the market isn’t doing as well. It is always important to have a backup plan and for many retirees that means having a strong cash reserve to cover expenses.
4. Avoid making emotional investment decisions
Emotions are a central part of what makes us human. They help us interact with others, ourselves, and the world around us. Emotions allow us to tap into spaces that give us the opportunity to connect deeper with others around us, but emotions can also lead to negative and impulsive decisions.
When it comes to investing, emotional decisions can play a big role in the longevity of your investment plan. A market downturn or correction is always a cause for concern, but especially among retirees who seemingly have more to lose.
But making an emotional choice, like selling off a majority of your assets isn’t the answer. For one thing, most of those investments will be sold at a loss and can also impact your tax bill. A decision like this is one that can’t be undone and can force your savings to take a bigger hit than if you stayed calm and waited for the market to correct itself again.
Investing through retirement can increase tensions but that is mostly because retirees pay hyper close attention to the news, daily/hourly stock market reports, and have more time to dedicate to second-guessing their plan or talking with friends about their money matters. When faced with a market downturn, the most important thing to remember is to stay the course and trust your financial plan.
5. Talk with your financial advisor
If you are feeling overwhelmed, nervous, or unsure about your financial plan the best person to talk with is your advisor. Your financial advisor will be able to walk through your concerns with you and give you the information and the confidence you need to stick with your financial journey.
It isn’t easy to handle your finances on your own and luckily with TFS, you don’t have to. Our advisors are here for you and are dedicated to making a plan that will not only work when times are good but will also withstand when times are bad.
Market downturns and corrections are always stressful times, especially for retirees. But if you have a clear idea of how your financial plan is structured, you understand and accept your fear of the situation, you don’t make emotional decisions, and you ask for help when you need it, you will be able to stay on the path to financial health.
Our advisors at TFS are ready to help when you need it. Give us a call today and see how we can help make your money work for you.
Please note: 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 is no guarantee of future results. Please note that individual situations can vary. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.