A volatile stock market is fine for the 20 - and 30 - somethings. It's a different matter for people approaching retirement.
Your retirement nest egg should be a source of security and comfort to you. It shouldn't be something that makes your blood pressure spike. if recent volatility is worrying you it may be time to take some action.
If the daily market news has you concerned, chances are your retirement portfolio and your investment portfolio are out of whack.
A good financial professional can help you analyze your risk tolerance, and help you build a portfolio that matches your ability to withstand market volatility.
Resist the urge to panic-sell.
Most people are terrible at timing the market and selling in a panic is a big contributor to that. The annual DALBAR "Quantitative Analysis of Investor Behavior" report shows that without the benefit of a financial advisor, the average investor underperforms the market significantly, consistently and over long periods of time.
For the 20-year period ending in 1996, the S&P 500 annualized return was 7.7%. But the average stock mutual fund investor achieved a real-world return of just 4.8%.
Why? Because fear and greed lead investors to buy and sell at the wrong times. Make an appointment with a financial professional before doing major selling.
Identify losing positions.
Did you make a bad investment, or perhaps several of them? You may be able to deduct an unlimited amount of these losses against capital gains when you sell winners. If you have more losses than gains, you can deduct $3,000 of those leftover losses against income.
If you still have more losses, you can roll them over to a future year and deduct up to $3,000 per year of them against income until they're all used up, in a strategy called "tax-loss harvesting". Your financial advisor or tax professional can help you carry out this strategy and reduce your taxes.
Rollback your risk exposure.
Once you know your risk tolerance and have identified losing positions, if any, that you can sell as part of a tax-loss harvesting strategy, then it's time to trim your sails, dialing down the risk exposure in your portfolio.
- Sell some stocks high so you can buy other things low.
- Reduce your stock and stock fund exposure relative to bonds and bond funds.
- Pay off or reduce personal debt as much as possible.
- Diversify into different asset classes, including real estate, and real estate investment trust funds, precious metals, life insurance and annuities.
Guarantee a minimum income for life.
You may be able to guarantee a base level of income for life. This could be a sound strategy if you are in retirement, nearing retirement, or just want the security of knowing a certain amount of income will be coming in every month for as long as you live.
The easiest way to do this is through a lifetime income annuity. This is simply a contract with an insurance company to pay a certain amount each year or each month no matter what happens in the market. At the end of the process, you should have a sound retirement portfolio that is likely to provide at least a basic income for as long as you live, and you should no longer have to worry about the day today movements of the stock market.
If you would like help from a professional who can guide you, Jennifer Lang Financial Services can assist you. Connect directly with a financial professional. You can request a personal strategy session to discuss your needs and goals.