If you checked your investment accounts during December 2024, you might have felt a little bit of a gut punch: the Dow Jones Industrial Average* made history on Tuesday, December 17th with “its first nine-day losing streak since 1978.”
Now, as a financial advisor, I encourage clients to avoid looking at their investments on a daily basis. Fluctuations in the stock market will happen and can make you crazy if you’re constantly monitoring them.
But this dip was hard to ignore – especially for those people who are retired or near retirement. Retirement is a time to savor the fruits of your labor, but when the stock market takes a dip or surges unexpectedly, it can feel unsettling.
Whether you’re retired or nearing retirement, staying calm and making informed decisions is key. Here are a few things to keep in mind.
Focus on Your Long-Term Plan
If you’re working with an advisor, remember that your financial plan was designed with market ups and downs in mind. Remember, retirement plans often account for market volatility by diversifying your investments and aligning them with your time horizon, risk tolerance, and income needs. Make sure to ask your advisor if they factor in the ups and downs when creating your financial plan: “What assumptions do you use for my financial plan?"
Check in with your financial advisor to revisit your plan and remind yourself why it was created the way it was. This can offer reassurance that your strategy is built to weather the storm.
Reassess Your Risk Tolerance
As you approach or settle into retirement, your risk tolerance may naturally shift. It’s a good idea to review your investment allocations periodically. Ask yourself:
- Are you comfortable with your portfolio’s current level of risk?
- Does your asset allocation still match your goals and needs?
Adjustments might be necessary to ensure your portfolio aligns with your comfort level and financial objectives. That’s why regular reviews with your advisor are important. Communicating your concerns with your advisor and listening to how they have allocated your investments could make you feel more confident about your plan – so you don’t have that gut-check moment when the market fluctuates.
Maintain a Cash Buffer
Having a cash reserve to cover 6 to 12 months of living expenses can help you avoid selling investments during a market downturn. This buffer acts as a safety net, allowing you to ride out fluctuations without impacting your lifestyle. Work with your advisor to ensure your emergency fund or cash bucket is adequately stocked for unexpected expenses or market turbulence.
IMPORTANT! Avoid Emotional Decisions
It’s natural to feel anxious when you see your portfolio’s value fluctuate, but making impulsive decisions can do more harm than good. Selling investments during a downturn locks in losses and can make it harder to recover when the market rebounds.
Instead, stay focused on your goals and trust in the power of a well-thought-out financial plan. A steady approach almost always outperforms reactive choices.
Remember that historically markets have always rebounded from downturns. While past performance isn’t a guarantee of future results, it’s helpful to remember that volatility is a normal part of investing. Overreacting to short-term fluctuations can derail your long-term success.
Revisit Your Withdrawal Strategy & Income Sources
If you’re retired or near retirement, you’re probably aware that financial planning doesn’t stop after your last day of work. Having a withdrawal strategy during retirement is just as important as the years you spent saving.
If market fluctuations persist, consider revisiting your withdrawal strategy. Strategies like the 4% rule, dynamic withdrawals, or temporarily reducing spending during market dips can help preserve your portfolio’s longevity. Your advisor can help you identify options that make sense for your situation without significantly affecting your quality of life.
Also, diversification isn’t just for investments - it’s for income, too. Retirement income might come from Social Security, pensions, annuities, rental income, or part-time work. By diversifying your income streams, you reduce reliance on any single source, such as market-sensitive accounts. Review your income strategy regularly to ensure it’s balanced and reliable.
Lean on Professional Guidance
A trusted financial advisor is your best ally in uncertain times. They can provide perspective, adjust your strategy if necessary, and help you avoid common pitfalls. Don’t hesitate to reach out with questions or concerns - our job is to help you feel secure.
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*The Dow Jones Industrial Average is an unmanaged index comprised of 30 top industrial companies and is considered representative of the general state of the stock market. It is not available for direct investment.