Can Your Retirement Plan Withstand a Market Downturn?
By Marjorie L. Rand, CPA, CFP®, RICP®
Market ups and downs are a typical part of the economic cycle, but when it comes to your retirement, the timing of a market drop can be more critical than the amount of the drop. Market volatility becomes an even greater concern when your retirement plan is at multi-year highs. Given the current market levels, it’s reasonable to anticipate a correction at some point.
The significant market volatility of the past few years has set many people back in their retirement plans. So, how can you prepare your retirement plan for a potential downturn?
How to Shield Your Investments
Market volatility can mean the difference between living comfortably in retirement or just scraping by. Facing a decline in the early years of retirement can be disastrous. Since bear markets occur every 3.5 years or so, there is a good chance you could experience a market downturn in the early years of your retirement. The following strategies won’t eliminate loss entirely, but they may provide a buffer against the natural ebbs and flows of the market.
Stay Calm
It’s easy to get swept away emotionally when the market negatively affects your finances. But if you stay true to your investment strategy and avoid making decisions when emotions are running high, you won’t run the risk of losing even more. As long as you have created a disciplined financial plan and are rebalancing your portfolio regularly, you are setting yourself up for success. Your number one priority is to protect your principal, so don’t gamble with your investments when the market is struggling.
Make it a Priority to Diversify and Rebalance
We’ve all heard about the importance of diversification when it comes to maximizing our investments. But as you get closer to retirement, it’s even more important to make sure you are investing in the right types of holdings. This is the time to reduce your risk and ensure that you have the right asset allocation. In this way, you can minimize the impact that any one losing investment can have on your overall portfolio performance.
Rebalancing is also a key factor in keeping your portfolio safe. It’s not enough to create proper diversification and just walk away. You need to regularly analyze your portfolio to ensure that it lines up with your risk level and that you haven’t become too reliant on any one asset category.Create an Emergency Fund
This strategy is all about being conservative. While cash investments may not provide a lot of growth, having a cash contingency fund with at least one year’s worth of living expenses will protect you against having to sell investments at low values to free up cash. Examine spending patterns and find ways to invest even more into cash or cash equivalents, such as short-term bonds, certificates of deposits, or Treasury bills.
Work With Your Advisor
Finally, and most importantly, take the time to collaborate with your advisor to prepare for the next bear market. With the market currently at an all-time high, it’s wise to consider the likelihood of a correction at some point. You don’t want to face the anxiety of running out of money in retirement due to a sudden downturn. At Rand Financial Planning, LLC, I can help you mitigate losses when the market declines and guide you in making rational decisions (regardless of market conditions) so you stay aligned with your long-term investment strategy.
Reach out to me to explore how you can enhance your current retirement plan to boost profits and safeguard against losses, even during market downturns. Schedule a 20-minute introductory call or connect at 908-895-2406 or marge@randfinancialplanning.com to see if I’m the right fit to help you on your financial journey.