No one could have predicted the outbreak of COVID-19 and its effects on the economy and financial markets. In some ways they were unprecedented: In a relatively short period, we had an extreme market fluctuation. It’s important to keep in mind that market fluctuations are natural, and the recent one shares many similarities to those that have come before. You’re certainly not alone if the ups and downs of the stock market make your stomach churn, but by understanding market fluctuations and what history has shown us, as well as having a sound financial plan, you will be able to navigate turbulent times with more confidence.
A closer look at market behavior
When it comes to your finances and making money decisions, your emotions can often play a significant role in the choices you make. Sometimes this can be a good motivator, but if you’re feeling anxious, especially when it comes to the stock market, you may unknowingly create roadblocks to your long-term financial success. Remember that knowledge is power, and the more you understand about economic trends, the less overwhelming it may feel when the market takes a sharp drop.
A bear market is a loss of 20 percent or more over a sustained amount of time — typically two months or more. It’s important to remember that the stock market has been up more than it has been down. For example, the S&P 500® from 1950 to 2019 was up 53.7 percent and down 46.3 percent of the total days in that period, with the percentage of positive days exceeding negative ones in every decade. A bull market, where stock prices increase 20 percent or more, often follow bear markets. But even if there is not a rapid upswing with each dip, history tells us the market eventually recovers, with stocks increasing over the long term. One of your strongest defenses against market volatility can be creating a sound financial plan that is both diverse and flexible.
Developing a flexible strategy
Your financial professional can help you create a financial plan that targets allocations to long-term goals, while still giving you flexibility as needs and retirement timelines change. Creating a diversified portfolio that matches your time horizon, goals and risk tolerance can help reduce the impact of market-related losses. Plus, staying focused on the bigger retirement picture allows you to keep market changes in perspective. Allocating some of your savings to a retirement income solution, like a fixed indexed annuity (FIA), provides you the opportunity to grow your assets, while keeping that money protected from loss due to market downturns. Your financial professional should meet with you regularly to ensure your plan is still on track. If an allocation no longer reflects your financial goals or if your retirement date changes, you can then rebalance the portfolio to better align with your needs.
Creating income for life
Including guaranteed income solutions in your portfolio can help ensure you’ll have a steady paycheck in retirement, no matter how long you live. A 65-year-old man in the U.S. can expect to live another 18 more years on average, while women of the same age can live another 20 years. Having a comprehensive financial plan can help you make sure that you’ll not outlive your savings. An FIA not only provides the opportunity for growth while providing protection from market risk or losses, but it can also provide a source of guaranteed income for the rest of your life.
In the future when the market is in a downswing, your immediate reaction may be to flee to safety, but your financial professional is dedicated to keeping your plan on track to help ensure you have what is needed to achieve your dreams for the future. While no one can control how the market behaves, understanding market fluctuations and designing a sound financial plan around your goals will help minimize the effects of a down market and protect your savings in turbulent times.
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