Grin and Bear It
There’s no sugarcoating what’s going on with the market. Both stocks and bonds are trading in bear market territory, which means they’ve fallen 20% from recent highs. Due to current macroeconomic conditions, that could remain the case for some time.
Markets are volatile at present and recession fears remain among many investors. Central banks across the world are hiking rates in a bid to slow inflation. All of this means plenty of uncertainty while investing for retirement through a 401K or similar account. But there are steps you can take in order to hopefully mitigate the damage over the long term.
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It’s important to remember that retirement planning is not typically governed by rash decisions. Because your portfolio aims to gain over decades as opposed to months or even single years, it can be very difficult to outwit current market trends. In this case, things are on the downswing.
The S&P 500 is down more than 20% year to date as of last week, and the S&P US aggregate bond index is down 14% over the same period. It’s undeniable this can weigh on an investor’s psyche and make it tempting to sell off shares. Yet that ensures you lose on that trade.
Let’s use history as our guide. If someone invested $10,000 in the S&P 500 in 1981, that would have grown to $1.1 million as of March last year, per Fidelity Management & Research. Of course, that entails leaving the money alone during that time period. If that same investor had missed out on the past 40 years’ top five best trading days – their nest egg would now be worth around $676,000.
Steps To Consider
Even while keeping things in perspective and agreeing to bet on the market, there are things that can be done in a bid to minimize risk, including an analysis of your ideal retirement date. Depending on when an individual chooses to retire, their portfolio may take on greater or higher risk. This translates to how a portfolio allocates funds into different stocks and bonds.
On the flipside, many financial advisors say that, for those who are able, this may be a good time to think about increasing contributions. Because prices are down, it has been compared by some to buying assets on a discount. Boosting contributions in this way can help alleviate the anxiety associated with a market downturn.
Finally, if your level of anxiety is causing stress and constant worry, it’s ok to increase your emergency fund. This can include a savings account or “rainy day fund” of any kind. Boosting cash on hand can help calm some investor’s nerves. Big picture, the most important thing is to think about when you plan to retire as well as your appetite for risk – so as to strike the best balance.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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