For nearly nine years, investors have enjoyed one of the longest bull markets in history. However, recent volatility suggests the possibility that the almost decade-long market upswing could soon come to an end. Volatility is a constant presence in any financial market. For retirees, that volatility can present a difficult challenge. You may rely on your savings and investments for income. If the market suffers a sharp downturn, you may have less income available to pay your bills and support your lifestyle.
There’s no way to predict the future movement in the market. However, you can take steps to protect your assets and limit your risk exposure. If you’re approaching retirement and haven’t yet analyzed your investment strategy, now may be the time to do so. Below are a few tips to help you get started:
Reconsider your allocation.
Diversification is central to any sound investment strategy. Simply put, diversification means spreading your investments across many different asset classes. This minimizes risk that may be specific to any one asset class and reduces your exposure to volatility.
Those who have many years until retirement may be able to afford a more aggressive allocation in the pursuit of higher returns. As you approach retirement, however, you may want to consider shifting some of your funds to asset classes that have lower historical volatility. You’ll still need growth potential, but a slight shift toward more conservative assets could reduce your risk.
Keep an emergency reserve.
An emergency reserve is always important, but it’s even more critical in retirement. You could face costly bills for medical treatment, prescription drugs or even long-term care. It’s helpful to keep a liquid, safe cash reserve that you can use to pay for these types of costs.
Without an emergency reserve, you may be forced to pull these funds from your retirement accounts and investments. Those distributions could exacerbate the impact of a downturn, making it much more difficult for your investment to recover.
Don’t make rash, emotional decisions.
It’s natural to feel anxiety about a market decline. However, it’s important to stay focused on your long-term objectives and avoid rash decisions. It may be tempting to sell your investments and move into cash or other “risk-free” assets. Those assets, though, often come with little growth potential.
Remember: You could live in retirement for decades. You’ll need some level of growth to fund your lifestyle and keep up with inflation. If you move all your investments into low-risk, low-growth assets, you may find that you don’t have sufficient assets in the later years of retirement. A financial professional can help you create a long-term strategy and make wise risk management decisions.
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