By Marjorie L. Rand, CPA, CFP®, RICP®
Investing can be an adventure. On one hand, it’s an effective way to grow wealth and equity for retirement. On the other, the market can be volatile and come with a range of risks. How can you safeguard your wealth when the investment market is so unpredictable by nature?
One thing is predictable about the investment market: it’s subject to periodic correction. While the timing cannot be precisely pinpointed, a correction of a 20-40% decline is common every 8.5 years, with a few more minor corrections in between.
Still, fears about how to safeguard your wealth for retirement are valid. There are, however, certain ways to approach market fluctuations that can help keep you afloat during the storm.
Put Money Aside for Emergencies
Your first priority is ensuring you have a sufficient emergency fund. There are many formulas you can use to calculate how much to set aside. At a minimum, it’s best to have a fund that covers at least six months of expenses. But if you can build one that covers an entire year or two to safeguard your wealth, even better. One of the first things I do for all my clients is ensure they have a sufficient emergency fund. This fund is set apart from the investment portfolio.
Keep Income Coming in, Limit Expenses Going Out
A dependable income stream is a key part of navigating retirement. Your dependable income might consist of Social Security benefits, pension payments, rental income, dividends, and interest. The objective is to do all you can to preserve this continuous flow of income and seek opportunities to grow that stream if you must. Many retirees even work part-time to bring in additional income.
Your dependable income can be used to cover all or part of your necessary living expenses. When the markets are down, look for ways to reduce your flexible expenses. This is especially important to do if you’ve already started taking distributions from your retirement fund. When slowdowns hit the market, consider reducing or eliminating the most unessential expenses—such as dining out, subscriptions, and luxury goods—so you don’t have to sell any investments when the prices are down.
I work with my clients to maximize their income in retirement and help them manage their expenses when the market is down.
Revisit Your Risk Management and Tolerance
The informed investor knows that selling off assets during times of market volatility is unwise. However, some still do just that; and once they do, those assets are gone for good, and the losses are locked in.
If you are managing your own investments, there are two things you must do now to avoid locking in the losses:
- Take some time to review your portfolio and your strategies for managing risk. Be sure you really can handle a large drop in the value of your portfolio without selling anything. If your portfolio declined by 20%, what would the dollar amount be? Can you live with that? What if it declined by 40% and didn’t recover for five years?
- Review your portfolio for diversification of assets. One of the surest ways to safeguard your wealth is to maintain holdings in several different sectors, market cap tiers, and investment types. This helps mitigate risk when economic downturns are on the horizon, so make sure to do it when you’re still in good shape.
When I develop an investment strategy for my clients, the first thing we do is look at how much risk you should take given your own circumstances and we have conversations about your risk tolerance. I work with my clients to develop an all-weather, diversified portfolio that is designed for the ups and downs of the markets. Knowing that your portfolio is prepared for market turbulence gives you peace of mind when the markets have a correction.
Rein In Your Emotions
Emotions are the enemy of successful investing. Undoubtedly, market volatility can be a source of unchecked emotions that cause many to sell assets irrationally. While it’s understandable to have those feelings, it’s important not to let them dictate your market actions.
Basic, everyday maintenance is a big part of restricting emotional trading. Set up a long-term strategy that reflects your capacity for risk tolerance. For example, think about using dollar-cost averaging to keep funding your investments. Avoid timing the market, and concentrate on fundamentals rather than immediate price movements.
I’m Here to Help
Market volatility is inevitable. I help ease my clients’ worries by developing an investment strategy that is ready to navigate through these storms. I provide the strategies and guidance needed to successfully weather an uncertain market. Rand Financial Planning is based in Flemington, New Jersey, but we work with clients from all over the country. If you are in need of a comprehensive financial planner, schedule a 20-minute introductory call or reach out to me at 908-895-2406 or firstname.lastname@example.org to see if I’m the right fit to help you on your financial journey.
Marjorie Rand is founder and financial advisor at Rand Financial Planning, a comprehensive, fee-only, fiduciary financial planning firm based in Flemington, New Jersey. Marge specializes in helping her clients plan for a secure retirement and navigate life’s many transitions through customized, tax-efficient retirement planning. She is passionate about empowering her clients to make the best financial decisions for their life and being by their side no matter what life throws at them. Marjorie spent many years as a CPA, specializing in estates, before founding Rand Financial Planning so she could be a go-to source for all her clients’ financial needs and help them avoid costly mistakes. She has a bachelor’s degree in accounting from Rutgers University and a Master of Science in Taxation from Fairleigh Dickinson University, along with the Retirement Income Certified Professional® (RICP®) and CERTIFIED FINANCIAL PLANNER™ certifications. When she’s not working, Marge enjoys boating, horseback riding, traveling, and hiking with her husband and her dog, Rangeley. To learn more about Marjorie, connect with her on LinkedIn.