Survive a stock market dipFinances
Any dip in the market can set investors on edge. It’s only natural: We see the numbers in our retirement accounts go down and we want to stop the bleeding any way we can. Of course, being able to check balances any time of day or night—and watching those numbers plunge in real time—doesn’t help fight the urge to react.
Here’s what to do if you’re feeling on edge during a market tumble, whether retirement is a speck on the horizon or just around the corner:
Don’t sell. “Panic selling stocks is never a smart move,” says Robert R. Johnson, president and CEO of The American College of Financial Services in Bryn Mawr, Pa. In fact, when the market is down it’s the worst time to pull your money out.
The key to protecting yourself against this kind of reaction is to have a portfolio that matches your financial situation, including factors like your expected retirement age and your tolerance for risks, says Ken Weber, president of Weber Asset Management in Lake Success, N.Y. If your portfolio is too risky for what your gut can bear—whether because of your proximity to retirement or not—meeting with a financial advisor can help you adjust your accounts to better match your risk to what you can tolerate.
Look ahead … far ahead. And not at your balance right now, says Johnson. If retirement is not around the corner (meaning less than five years away) you shouldn’t fear the short-term vagaries of the market.
Over the long run, stocks increase in value, but that doesn’t mean there won’t be periods where they will decline. Instead of panicking, view these dips as buying opportunities that allow you to buy stocks at essentially a “sale” price. And if you’re putting money into your account evenly throughout the year that means you’re bargain shopping when prices dip.
Reallocate your funds. If you’re not far off from retirement and want to make sure you don’t get socked on a dip right before you’re about to start your next chapter, it’s time to talk to a financial advisor about reducing your risk.
“If you are close to retirement, you need to be much more risk averse and have a more conservative asset allocation,” says Johnson. “That may mean taking some of your funds and buying an income annuity to assure your cash flow during retirement.” Another option is a longevity annuity, which provides you with an annual income at a certain age like 80 or 85, which can protect you from outliving your retirement funds.
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