Five Tips for Coping with Market Volatility
How you react to economic uncertainty can make a difference in your retirement preparedness. The following suggestions may help you stay more in control of your investments during periods of market volatility.
Generally, a good diversification strategy will be split between stocks, bonds and other investments. It also will take into consideration how long you have until retirement (or until you need to start taking withdrawals) and your level of comfort when it comes to risk. Review your investment strategy regularly, and stick to it when markets get erratic.
Investing always comes with risks. By understanding your risk tolerance and investing timeframe, you can use diversification and asset allocation to create an overall investment strategy. Doing so can help to manage your risk exposure.
When you start feeling anxious about the economic situation, remember the plan you have in place. Keep in mind that markets go up and down. The long-term performance of your account is what matters. Your investment plan can help you avoid making investment decisions based on how you feel about the current market behavior. A plan can also provide confidence that your investment strategy is right for you no matter the current market condition.
When news headlines that proclaim market slumps and economic woes start to worry you, contact a financial professional to get the whole story. He or she can answer questions about how market volatility affects your specific financial situation. A financial professional can also assist you in ensuring your investment approach aligns to your future financial goals and may also suggest ways to make you less susceptible to market changes.
Do you need a trust? It depends on the amount of assets you have and how you wish to distribute them. A will might suffice if there aren’t many assets and few survivors who will receive them. But if you have a lot of assets and it looks like things may get complicated, you might want to set up a trust.
A trust is a fiduciary arrangement that specifies how your assets will be distributed at the time of your passing, usually without the involvement of a probate court. Unlike a will, a trust isn’t subject to public scrutiny and can be arranged to accomplish a variety of different goals.
For example, you can use a trust to transfer property, help minimize estate taxes, preserve assets for minors until they are adults or donate to a charity.
When the market is in a downturn, it’s tempting to get out of investing altogether. However, this may not be the best decision. Financial markets rise and fall quickly. Before you know it, the investments you got rid of may rally and experience superior performance. History has taught us that knee-jerk reactions in a market slump often lead to regret when the market springs back.
You may find that you lack the knowledge or time to manage your investments through different market conditions. If this sounds like you, consider taking more of a hands-off approach to investing.
- Target Date or Target Risk funds streamline the investment decision by allowing you to select one fund based on your target retirement date or tolerance for risk. These funds are prebuilt from a collection of funds and managed to achieve the outcome of the fund, making them a convenient choice for those who prefer a more “hands off” approach.
- You may also have the option to hire a third-party investment management company to handle your investments for you. A managed account option will rebalance your investment allocation as you reach different stages in your life and as the markets change. Discuss your managed account options with a financial professional.