Nothing is certain except death, taxes, and market volatility.
As part of our new program, CensiblyYours Financial Wellness Tools, we’ve partnered with Kaye Captial Management to help make you make smarter investment decisions. We spoke with their investment experts about ways for retirement savers to survive the market’s ups and downs.
In general, how do market downturns impact 401k accounts?
Investing in the stock market comes with inherent risks, including market volatility. One key to mitigating these risks is to take a long-term approach to investing. Retirement plans, like 401ks, should be seen as long-term investments that can handle market downturns, especially for younger participants. Think about the mountain of a stock market graph—although there are fluctuations downward, the general trend is positive. As such, sit tight with market downturns, because a well-diversified portfolio should net a positive return over the long term.
For individuals closer to retirement, choose assets with less risk to maintain principal. Because you have a shorter time horizon, selecting lower risk assets may not generate a high yield, but should help you retire comfortably by preserving principal.
How should 401k investors react to market volatility?
Market fluctuations are part of the game when it comes to investing. If you are properly diversified and you are able to stomach the volatility, you will be better off in the long-term.
Participants who are not in target date funds or models should rebalance their portfolios during market volatility to make sure their accounts have appropriate risk parameters.
How does market volatility impact retirement savers over 50, or those close to retirement?
Market volatility is more impactful for those over 50 because they have a shorter time horizon for investment than younger participants. However, those over 50 tend to know what it’s like to go through market fluctuations, so they understand that although the market can be is volatile short-term, investing for the long-term can contribute to the growth of your nest egg. A participant over 50 is better served to invest in less-risky assets to preserve their principal. By doing so, they mitigate the potential for a major crash just before retirement.Read full article