Navigating Market Volatility: Investment Strategies for Future Retirees

Many people struggle with planning for retirement and managing anxiety over volatile markets. The shift from working and saving for retirement to spending the money in those accounts can be difficult to comprehend. Having a general understanding of market volatility and working with a financial professional can be key during this life transition.

In this blog post, we discuss several portfolio strategies financial professionals use to plan for market volatility and help maintain financial security.

Long-Term Investment Mentality

It is important to adopt a long-term investment mindset during this transition. Understand that your retirement savings are invested for the long term, not the short term. A helpful phrase to remember is, “Retirement investing is a marathon, not a sprint.”

A common mistake many investors make is panicking and pulling out of the market during downturns. Instead, consider these steps:

• Do not panic when the market is down. Avoid making rushed decisions.
• Connect with your advisor regularly. Schedule annual or more frequent reviews to discuss your retirement savings and long-term investment strategies.
• Remember that market volatility is expected. We have experienced multiple downturns and continue to plan for these events at BGM. If you look at market performance over an extended period, it has consistently trended upward despite occasional declines.

Diversifying Your Portfolio

A diversified portfolio is essential when navigating market volatility. At BGM, we emphasize diversification as a strategy to manage risk and enhance potential returns.

Spreading investments across different asset types and markets helps minimize the impact of volatility in any single sector. By building a strong, diversified portfolio, we help clients achieve stability and long-term growth, even in volatile conditions.

Asset Allocation

At BGM, we focus on strategic asset allocation to navigate volatile markets. Adjusting the balance of assets based on market conditions and client objectives helps portfolios remain resilient and aligned with long-term goals.

While your asset allocation may change with age to protect assets, some clients choose to maintain riskier allocations to support future generations. Ultimately, it is important to select an asset allocation that aligns with your lifestyle and objectives.

Continuously Rebalance Your Portfolio

Portfolio rebalancing is essential to maintain your preferred risk tolerance during long-term retirement planning. At BGM, we allow portfolios to reach a specific standard deviation before rebalancing, which helps ensure efficiency and avoid excessive trading.

Emergency Fund

Maintaining an emergency fund of three to six months’ worth of expenses is a vital step, even in retirement. For single-income households, six months of expenses is recommended, while dual-income households may require only three months.

At BGM, we typically keep one year’s worth of cash withdrawals in client accounts to prevent the need to pull funds from the market during downturns.

Consider placing your emergency fund in a high-yield savings account or money market fund to help maximize yield.

Avoid Trying to Predict or Time the Market

A common mistake that investors make is attempting to time the market. Since retirement investing is a long-term objective, periodic investments over time are generally more effective than market timing. Missing the market’s best-performing days can significantly impact long-term returns.

Many retirement plans, such as 401(k)s, use consistent paycheck contributions to encourage dollar-cost averaging, which helps mitigate the risks of market timing.

Utilizing Tax-Advantaged Accounts

Understanding when to contribute to different accounts, such as IRAs, 401(k)s, and Roth IRAs, is another important strategy.

While after-tax accounts provide opportunities for tax-free growth, their effectiveness depends on your tax rates before and after retirement.

A strong financial analysis can help reduce tax liability and maximize post-retirement income. Consider talking with a financial advisor for an analysis based on your situation and goals.

Emotional Discipline: The Key to Success

Trusting your financial planner and the market with your hard-earned money can be challenging. Fear of low markets often leads to rushed decisions. Follow these tips to avoid common mistakes:

• Stick to Your Plan: Follow the analysis and long-term strategy you created with your financial planner. Consistency will help you achieve your goals.
• Tune Out the Hype: Financial media often exaggerate, creating dramatic market narratives. Focus on your financial goals, and trust your planner to make necessary adjustments.
• Focus on Controllable Goals: While markets are unpredictable, you can control your saving habits and spending patterns. Focusing on what you can control can help create more peace of mind.

Navigating market volatility and planning for retirement can be complex, which is why working with a financial professional is highly recommended. Remember, market volatility is expected. Adopting a long-term perspective, maintaining a diversified portfolio, and practicing emotional discipline can help you manage market fluctuations.

If you feel uncertain about your investments, consider reaching out to a financial professional for reassurance and peace of mind.

The opinion of the author is subject to change without notice and must be considered in conjunction with relevant regulation, as well as subsequent changes in the marketplace. Any information from outside resources has been deemed to be reliable but has not necessarily been verified. Each individual has unique circumstances to which this information may or may not be relevant. Under no circumstances will this information constitute an offer to buy or sell and it does not indicate strategy suitability for any particular investor.