3 Tips For Handling Those Inevitable Stock Market Swings

Swings in the stock market can cause emotions to run high, particularly for investors who are approaching retirement. And for good reason.

Recent research from Ameriprise Financial uncovered that the biggest financial setbacks American investors have experienced in their 50s through their 70s is market losses.

Though most respondents – 62 percent – have fully recovered from these events, they’re still afraid of potential bumps down the road.

If you share this anxiety as you approach retirement, remember that market volatility does not always mean you need to make changes to your portfolio.

The following tips can help you prevent fear from getting the best of you:

1) Concentrate on your financial goals.

No one can say with certainty what will happen to stocks over the next week, month, year or decade. But what may be more certain is your financial goals for those time frames. Ensure your portfolio is designed to help you achieve those goals, rather than to achieve a specific market outcome. Remember that timing the markets is rarely successful because there are so many unknown factors influencing how stocks move.

2) Keep your emotions in check.

Market corrections, dips and swings are inevitable for investors in the short term, so it’s important to look beyond the daily hype and headlines. Instead, watch for broad, persistent trends that could provide opportunities or challenges for your overall financial situation. As you ponder adjustments to your portfolio, remember that while you can’t control the market, you can control your reaction to it.

3) Reassess your portfolio according to your retirement date and risk tolerance.

Two items that are more in your control are your risk tolerance and retirement date. Keep in mind that each person has an individual comfort level with taking risks. You may find that your ability to handle market swings varies over time, particularly if you’ve experienced volatility in the past or are planning your retirement. Big market moves or dips may be a good time to step back and evaluate your portfolio according to when you anticipate needing to generate income from your investments:

•If you have a decade or more before retirement, prioritize building your investments using a diversified asset mix. Investing regularly in the market could help volatility work to your benefit, as you have more time to ride out short-term turbulence and overcome potential losses. As you refine your retirement plans, calculate how much money you need to live the lifestyle you want, while also preparing for unexpected expenses such as health care. Knowing how much you need to retire can help you stay confident in your financial strategy amid market uncertainty.

•If you are within a few years of retirement, you likely are more sensitive to short-term market moves. At this point, you may consider gradually adjusting your portfolio to reduce your level of risk. If you wait until retirement to adjust your investment mix, you could be surprised by untimely market volatility or a downturn. If this happens, it could leave you with less money in retirement compared to your plans, forcing you to modify your goals or lifestyle. If the market is experiencing a correction, you may want to wait for it to rebound (as it historically has) before making adjustments. Making changes immediately amid volatility could lock in possible losses.

•If you are retired, be patient and maintain your diversified investment strategy. If the potential for a downturn or increased volatility makes you nervous, consider reallocating your portfolio accordingly. Keep in mind that even in retirement, it may make sense to have part of your investment mix focused on growth. Today’s long life expectancies mean that you need to be prepared for the likelihood that living costs, particularly health care, will be higher in the later decades of your retirement.

Shawn Bumgardner is a financial adviser and president of Clear Horizon Wealth Advisors, a private wealth advisory practice of Ameriprise Financial Service Inc., in Southgate. He can be reached at 734-284-3700.

Source : http://www.thenewsherald.com/opinion/steps-to-handle-market-volatility-as-you-approach-retirement/article_bc4f47c3-a1aa-5515-bb70-fcbd2b021aaa.html

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