In case you missed it, the following article is from the Summer 2020 issue of The Emerald. Written by Joseph Conway (Cal State Fullerton ‘78) who serves as President for Diversified Investment Services. To read the issue, visit here.
Market Volatility and Your Retirement Investing Strategy
Fluctuations in your 401(k) or retirement savings account can stir up negative emotions, making you want to hit the panic button. But in turbulent times, it’s more important than ever to remain calm and stay on course toward your long-term retirement savings goals.
World events affect financial markets, sometimes significantly, as we have seen with the Coronavirus. But what, if anything, should retirement investors do in response? For those investors with a long-term perspective, the right answer may be to do nothing. In general, the biggest risk investors face over time is overreacting to events and market volatility. So, how can you manage your response to short-term noise? Here are some tips to help you keep calm and carry on.
Managing your portfolio
A long-term perspective and diversified portfolio remain the best ways to take advantage of investment opportunities and hedge against risks, but staying the course is sometimes easier said than done. To ensure that your retirement portfolio is positioned to benefit from future market upswings, keep these tips in mind:
- Resist the urge to sell. Even though your 401(k) may have lost some value over the past few months, it pays to stick to your plan. Allowing emotions to drive your decisions could mean missing out on potential gains when the market stabilizes.
- Don’t try to time the market. When you stray from your well-thought-out plan to chase higher returns, your 401(k) account performance may get worse, not better. We know that past performance does not guarantee future results and that, historically, when it comes to the various asset classes, there is no discernible pattern of winners and losers. Because there is no way to predict next month’s or next year’s winners, you have a better chance of doing well by holding a wide range of investments and maintaining a long-term focus.
- Keep contributing to your 401(k). Although you may feel uneasy looking at your account balance right now, this is not the time to stop contributing to your 401(k) or other retirement savings vehicles. Doing so could mean leaving valuable employer-matching contributions on the table. Further, if you reduce your contribution rate, you also reduce your ability to benefit from the magic of compound interest.
We need to remember that market pullbacks are normal, even ones that are big and fast. And we need to remember that we made it through all of those and many more. We will make it through this!