As an investor, you’re well aware that, over the short term, the financial markets always move up and down.
During your working years, you may feel that you have time to overcome this volatility. And you’d be basing these feelings on actual evidence: historically, the longer the investment period, the greater the tendency of the markets to “smooth out” their performance. But what happens when you retire? Won’t you be more susceptible to market movements?
You may not be as vulnerable to market movements as you might think. People are living longer, and may easily spend two, or even three, decades in retirement — so your investment time frame isn’t necessarily going to be that compressed.
Nonetheless, it’s still true that time may well be a more important consideration to you during your retirement years, so you may want to be particularly vigilant about taking steps to help smooth out the effects of market volatility. Toward that end, here are a few suggestions:
Allocate your investments among a variety of asset classes
Of course, proper asset allocation is a good investment move at any age, but when you’re retired, you want to be especially careful that you don’t “over-concentrate” your investment dollars among just a few assets.
Spreading your money among a range of vehicles — stocks, bonds, GICs and so on —can help you avoid taking the full brunt of a downturn that may primarily hit just one type of investment. (Keep in mind, though, that while diversification can help reduce the effects of volatility, it can’t assure a profit or protect against loss.)
Choose investments that have demonstrated solid performance across many market cycles
As you’ve probably heard, “past performance is no guarantee of future results,” and this is true. You can help improve your outlook by owning quality investments. So when investing in stocks, choose those that have actual earnings and a track record of earnings growth. If you invest in fixed-income vehicles, pick those that are considered “investment grade.”
Don’t make emotional decisions
At various times during your retirement, you will, in all likelihood, witness some sharp drops in the market. Try to avoid overreacting to these downturns, and stay disciplined to your strategy. If you can keep your emotions out of investing, you will be less likely to make moves such as selling quality investments because their price is down, and missing any market rebound
Don’t try to “time” the market
Focus on taking a longer-term view of market volatility by staying invested and making consistent investments into quality assets based on a systematic strategy and not predictions of market highs and lows.
Over time, this method of investing may result in lower per-share costs. However, as is the case with diversification, this type of systematic investing won’tguarantee a profit or protect against loss, and you’ll need to be willing to keep investing when share prices are declining.
It’s probably natural to get somewhat more apprehensive about market volatility during your retirement years.
But taking the steps described above can help you navigate the sometimes-choppy waters of the financial world.
Bruce Shepherd is a financial advisor with Edward Jones. This article is provided for information purposes only. Please consult with a professional advisor before implementing a strategy.
