Market volatility can make investors a little queasy as they near retirement even though it is perfectly normal. Financial professionals Alan Clopine and Joe Anderson walk through steps to limit the impact of market volatility on your retirement income and help keep your retirement plan on track.
Alan: The next topic we want to get into is market volatility. And market volatility, Joe, it’s generally normal for the market to be volatile. We’ve had several years where it’s been flatter. But market volatility is not necessarily a bad thing. It’s actually pretty normal.
Joe: Right, you know we’re talking about how you can reduce your overall income. So we looked at maybe claiming the wrong Social Security, or your pension all of a sudden defuncts and then you got a lower payment here, or you have a health event where a lot of cash is coming out. But now, this is something that you can control, right. You can absolutely control your emotions when it comes to your overall portfolio. But this is one of the hardest things because we’re so attached to the money we’re not equipped as humans to really deal with it.
Alan: Yeah, and here’s what happens Joe, is this is kind of you know this is what the market tends to do and what happens to our emotions when it’s going well? The greed sets in, we want to buy, the stock market works again, we want to make some money, right. And so we tend to buy high and then the market corrects and it always corrects it’s not unusual to correct but that’s when the fear sets in and what happens? We sell. So now what have we done? We bought high and sold low. It’s not a good recipe but this is when you when your emotions kick into your retirement and your investments it’s not necessarily a good thing.
Joe: And another thing happens here too, Al. And it’s not necessarily volatility of overall the markets. It could be just you’re hearing benchmarks of maybe the S&P 500 does 6% but your portfolio is only doing 4% and you really don’t understand your portfolio, or you go to a cocktail party and you hear someone that has really good performance in their portfolio versus yours. And so then we’re apt to quickly change strategies because “oh, this one is doing a lot better than mine.” But what you’re doing again is you’re buying high, because that performance has already happened. You’re not buying at their prices, now you’re buying at brand new prices in that over – that percentage increase has already happened. So, you have to control your emotions, even when volatile markets, or when we get these, you know buyer remorse if you will, or you want to follow the herd and say, “Hey Big Al, he’s a smart guy, I want to do what he’s doing.” But it’s not your money, it’s not your goals, it’s a totally different situation.
Alan: Yes, so we’ve got some tips for what you should do and what you should not do in volatile markets. And I think that very first thing is to check your portfolio. Make sure that – we’ll call it a checkup, portfolio checkup. So, make sure you’ve got the right portfolio for you. And the portfolio for me is going to be completely different from Joe and everyone else out there. We all have different goals, different needs, different income needs. Some of us have kids, some of those don’t have to have kids. Every person’s a little bit different. So, get a checkup to make sure you have the right portfolio for you. Make sure it’s well diversified. And here’s a really important one, I’m going to circle it, makes sure that you have enough safe investments for your cash flow needs. So, if you’re retired and you’re drawing money from your portfolio it shouldn’t all be in stocks because stocks can go down, they can go down quickly if you’re drawing money out of your stock portfolio. When it’s down you have a lot of problems recovering because the portfolio is down and you’re taking money at the same time.