As an investor, you’re aware, over the short term, the financial markets move up and down. During your working years you may feel that you have time to overcome this volatility. You’d be basing these feelings on evidence: the longer the investment period, the greater the tendency of the markets to “smooth out” their performance. What happens when you retire? Won’t you be more susceptible to market movements?
You may not be as vulnerable as you think. Given our awareness of healthier lifestyles, you could spend two or three decades in retirement — so your investment time frame isn’t likely to be that compressed.
Time may be a more important consideration during your retirement years, so you may want to take steps to help smooth out the effects of market volatility. Here are a few suggestions:
• Allocate your investments among a variety of asset classes. Proper asset allocation is a good move at any age, but when you’re retired, you want to be careful that you don’t “over-concentrate” your investment dollars among just a few assets. Spreading your money among a range of vehicles — stocks, bonds, certificates of deposit, government securities and so on — can help avoid taking the full brunt of a downturn that may primarily hit just one type of investment. (Keep in mind, diversification can help reduce the effects of volatility. It can’t assure a profit or protect against loss.)
• Choose investments that have demonstrated solid performance across many market cycles. As you’ve heard, “past performance is no guarantee of future results,” and this is true. You can improve your outlook by owning quality investments. When investing in stocks, choose those that have earnings and a track record of growth. If you invest in fixed-income vehicles, pick those that are considered “investment grade.”
• Don’t make emotional decisions. At times during your retirement, you will witness some drops in the market. Avoid overreacting to these downturns, which will probably just be normal market “corrections.” If you keep your emotions out of investing, you will be less likely to make moves like selling quality investments because their price is temporarily down.
• Don’t try to “time” the market. You may be tempted to “take advantage” of volatility by looking for opportunities to “buy low and sell high.” In theory, this is a fine idea — but no one can really predict market highs or lows. You’ll probably be better off by consistently investing the same amount of money into the same investments. Over time, this method of investing may result in lower per-share costs. This type of “systematic” investing won’t guarantee a profit or protect against loss, and you’ll need to be willing to keep investing when share prices are declining.
It’s natural to get somewhat more apprehensive about market volatility during your retirement years. Taking the steps described above can help you navigate the financial world.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.
Information provided by Scott Ferguson, Edward Jones, 1100 N. Hickory Blvd., Suite 201, Pleasant Hill, 266-8188, www.edwardjones.com.