Volatile stock market conditions raise questions about how to grow your retirement savings, especially as you approach retirement. After last year’s slump in prices, market analysts and those whose stocks make up a large part of their portfolios aren’t quite sure what to expect in 2019.
Some financial advisers say such uncertainty calls for reviewing and possibly adjusting retirement plans to protect against market downturns.
When you are approaching retirement and actually planning for it, you have to understand the consequences of volatility. It is easy for people to forget the pain of a recession when the markets are doing well. But the market will always go up and down, and this is the struggle of people who are learning that to retire successfully, they need to truly diversify their retirement portfolio and protect it from recessions.
How do you do that? You build a long-term plan with a more resilient market that puts in some safety nets to protect us in the event of a recession.” Here are four tips for protecting yourself from a volatile stock market and a possible downturn.
Know your risk level
As a society, we don’t understand the difference between saving and preserving. It’s extremely important to understand how much risk you can handle. If you create a plan based on this, you won’t make emotional decisions, which are often bad when the market is down.
Consider a Fixed Index Annual Income
With interest rates rising, bonds are not as safe as investments. A fixed index annuity is an alternative to bonds because it has a built-in underlying protection and therefore provides safety. For the past few years, people have been trained to think that they need to invest in bonds to offset the risk in their stocks, but now we are in a period where we are heading into the unknown. The stock market is going down, but we also have rising interest rates, which impacts the bond market. When you use a fixed index annuity, you will not see its value go down as interest rates rise.
Don’t overestimate
When the market conditions are good, you look at your 401(k) and you don’t see much loss, so you tend to step back and not check your account as often. But in times like now, when the market is turbulent, people start to be more active and analyze things more than usual. That being said, sometimes it’s better for people not to watch as much news because it’s negative and some people may overreact to it. Put a good recession-proofing plan in place and don’t panic.
Diversify your portfolio
You don’t want, say, 80 percent of your portfolio in stocks, especially now. It’s important to diversify, and also understand how your money is actually invested. Have a written investment plan that takes your goals into account. You need to understand the importance of changing your mindset : the closer you get to retirement, the less aggressive you need to be.