The year is already half over, and one thing that remains certain is that the markets continue to twist and turn in even more new and unexpected ways.
The stops and starts, the lurches forward and backward, seem to be happening on a daily basis. It almost feels like market volatility is “the new norm.” In fact, according to the 2018 Market Perceptions Study from Allianz Life, more than a third — 35 percent — of Americans said they are comfortable with the current market conditions.
However, even while a third of Americans have grown comfortable with the ongoing volatility, a slightly higher percentage (37 percent) report that this volatility has made them anxious about their investments. These findings reflect a simmering anxiety that lies not too far underneath the surface of the American investment psyche.
[See: 8 Investing Do’s and Dont’s During Market Volatility.]
Whether you’re acclimated to the current market conditions or feeling increasingly nervous, there are certain tips to help navigate these volatile times:
Don’t obsess. One of the ways to avoid making the all-too-common mistake of locking in losses as the market fluctuates is to resist checking the performance of your investments on a daily basis. If you have confidence in your financial professional and the retirement strategy that you have laid out together, constantly checking on performance in a volatile market will only cause extra anxiety.
Additionally, input from TV, social media and even friends can stoke the panic. This can sometimes lead to those gut reactions that aren’t in your best interest — like selling off at a loss. It can be a good idea to turn off the noise and remember that no one can be completely sure of how markets will perform, and that past investment performance is not an indicator of future performance. There are certainly times to do your research and change strategies, but checking on performance too often can lead to making errors in judgment, and in turn potentially costly decisions.
Stay the course. When the stock market plunges, it’s easy — and often instinctual — to feel panicky and attempt to minimize additional losses by selling off investments. However, this is the time to stay calm and stay the course. Despite what can seem like a sickening downturn, as the saying goes, this too shall pass.
Don’t lose sight of long-term investment goals. Keep in mind that if one pulls their investments out of the market, there is zero chance to experience recovery and future gains, which can cause long-term consequences to a financial strategy. Down markets can also mean great buying opportunities from an equities standpoint because you are buying at lower prices.
In addition, investing always comes with risk. Generally speaking, the younger someone is, the greater the amount of risk is allowable. With that increased risk comes higher potential for reward (or loss), and having a long-term investment horizon makes for a longer runway to have the opportunity to realize those potential gains.
[See: 10 Long-Term Investing Strategies That Work.]
Don’t put all your eggs in one basket. This old saying rings especially true in the investment world. Diversifying your investments across a variety of assets can reduce risk, help protect your overall portfolio in the long term, and can provide a level of reassurance during market fluctuations. Seek out a range of different investment opportunities so if one investment experiences a drop, others have the potential to gain or may remain even.
It is important to note that diversification does not ensure a profit or protect against loss.
Build in a level of protection. For those approaching or already in retirement, risk tolerance changes and investments that are more conservative may play a greater role in an overall financial portfolio. Depending on circumstances, it may be important to maintain some level of exposure to the market, but it is also wise to build in a level of protection into the financial strategy.
Having a level of protection as well as a source of guaranteed income in retirement are two factors to consider. It may make sense to include annuities as part of an overall retirement portfolio. Annuities combine the potential for long-term growth through market participation with tax deferral, death benefits, and living guarantees. Some annuities can offer a level of protection from market downturns through optional additional cost riders and guaranteed income in retirement.
There are many options from which to choose, including fixed or variable, different allocation options, allowing lock-in of any gains during or at the end of a contract year, and more. There are varying potential charges and additional fees to consider and, most importantly, you should understand how the product works, including inherent risks and limitations of the annuity. Variable annuities are subject to investment risk, including possible loss of principal. Also, investment returns and principal value will fluctuate with market conditions so that units, upon distribution, may be worth more or less than the original cost.
It’s important to have confidence in the company that is issuing the product, as any guarantees are backed by the financial strength and claims-paying ability of the issuing company. Consult a financial professional to help determine what may be suitable for individual needs.
[See: 9 ETFs for Nervous Investors.]
Roller coasters might be fun at amusement parks but not so much when it is your future retirement taking the ride. The extent to which you can tolerate volatility in the market should be one of the determining factors in both the investments you choose and the amount of protection you need as well as where annuities may fit into your overall portfolio. When you are comfortable with the choices and retirement strategies you have made, monitor but don’t obsess about the volatility, and continue to plan for your retirement.
Disclosures: Withdrawals will reduce the contract value and the value of any protection benefits. Withdrawals taken within the contract withdrawal charge schedule will be subject to a withdrawal charge. All withdrawals are subject to ordinary income tax and, if taken prior to age 59½, may be subject to a 10 percent federal additional tax. This content is for general educational purposes only. It is not, however, intended to provide fiduciary, tax or legal advice and cannot be used to avoid tax penalties; nor is it intended to market, promote, or recommend any tax plan or arrangement. Clients are encouraged to consult their own legal, tax and financial professionals for specific advice or product recommendations.
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4 Tips to Protect Yourself from Market Volatility originally appeared on usnews.com
