Retirement Planning
Stock Market

Market Ups and Downs and Your Retirement

The events over the last few months remind us that no one can predict the ups and downs of the stock market. While there’s abundant information out there to reference so you can make informed decisions, there’s also a lot of conflicting advice. Some argue for “timing the market,” but there is simply no way to foresee all the periods of market volatility that may occur throughout your retirement. Sometimes market drops – like the coronavirus correction – are tied to unpredictable events like epidemics and natural disasters. No one could have foreseen the outbreak of this disease, and there’s still much uncertainty as to how far it will spread. However, it is possible to take steps to help protect yourself from market volatility ahead of time.

And, there will always be recoveries as long as there are market drops. Over time, the market goes up, with periods of volatility and downturn along the way. In order to time the market successfully, someone not only has to avoid the drop, they also have to catch the rebound. In a worst-case scenario, someone might panic and sell, thus locking in their losses and missing out when the market recovers.

A major rebound could happen in a single day, making the probability of missing it high if you only follow a timing the market strategy. Consider the findings of a study on what would happen to a hypothetical $10,000 investment into an S&P 500 index fund from January 1st, 1980 to January 1st, 2019.[1] Staying invested throughout the entire time period resulted in hypothetical gains of $659,515. But, missing the five best days of the market resulted in 35% lower gains of $426,993. And, missing the best 10 days in the period resulted in gains of $318,036.

It’s important to consider your risk tolerance before you retire. If you felt your heart rate increase with news of recent significant market drops, then you may want to rethink your risk tolerance and retirement plan. As you find yourself at, near, or in retirement, you’ll want to know how much retirement income you’ll need and where it will come from.

Ultimately, you may want to consider how to help protect what you’ve earned and try to avoid letting emotions impact your financial decisions. Diversifying your investments, maintaining an appropriate mix of stock and bonds based on your age and risk tolerance, and having a long-term financial plan can help you feel more secure and prepared during times of market volatility.

There’s no single right approach to retirement planning in a volatile market. We can work together to help you make smart financial decisions based on your unique situation and to help prepare your retirement plan for whatever the stock market brings.