For several years leading up to 2018, the stock market was abnormally calm. Stocks had some ups and downs, but generally continued to march higher without much disruption. Then, in the fall of last year, we started to see a spike in market volatility.
More sizable drops in the prices of stocks — even when quickly erased by gains the next day — generated unease for investors who had become accustomed to smoother investing conditions.
Historically, of course, market volatility is more of the rule than the exception. But it can cause even the savviest stock investors to ask, “Do I need to take action?” And for investors who are retired, an even bigger question may arise: “How will moves in the market impact the savings I am living on?”
If you are asking either of these questions, know you are not alone. When you see the daily headlines about what might be to come, it’s natural — and even prudent — to step back and ponder what you need to do next. Here are two steps to consider:
- Review your withdrawal strategy.
Depending on how much money you have invested in stocks, your portfolio may lose value when the market dips.
If market swings and the potential for a greater downturn make you nervous, revisit the amount of money you withdraw monthly to meet your expenses.
As you review, the goal is to be assured that the amount you withdraw to meet the next year or two of expenses does not put your long-term financial security in jeopardy.
If your base of assets is reduced, you may have to trim your withdrawal amount to assure you have a sustainable long-term income strategy.
- Don’t take unnecessary chances in your stock exposure.
For the long-term investor — which includes you as a retiree — volatility in equities can work in your favor. It’s possible that you will spend one to three decades in retirement, giving you time to withstand some market moves. At the same time, it’s important to preserve your base of savings and not be overexposed to stock risk.
Review your exposure in the context of your full financial plan to evaluate if you are taking the right amount of risk. Additionally, focus your equity portfolio on higher quality stocks — primarily blue-chip companies that tend to demonstrate more stable performance. Stocks that pay competitive dividends may also be an effective choice to provide a source of reliable return on your investments.
These steps are a good starting point to test whether your investments are properly positioned to provide a secure retirement. If you want help determining what additional steps may be right for you, consult a financial advisor in your area.