During the past few months, investors have been flooded with headlines warning of market swings and extreme volatility, threatening major companies and Main Street portfolios alike. With eyes still fixed on emerging markets overseas and speculation around regulatory changes at home, many investors may find themselves uncertain of how to best manage their portfolios to ensure that the money they've been working hard to save for retirement remains safe.
Whether your money is in a 401(k), traditional or Roth IRA, 403(b) or any other savings account, the most important thing to keep in mind as the final quarter of 2015 plays out is to keep thinking in the long term. Since the financial crisis, the markets have generally been performing well for everyday investors. Contraction is a normal part of the market cycle and, with the right strategy, it should not have a major effect on your retirement savings.
Create a solid plan. According to the Voya Retire Ready Index study, only 17 percent of working Americans have a written financial plan in place. With that in mind, one of the first basic steps to avoid the consequences of market volatility is to create a solid plan.
Consider meeting with a financial advisor to map out your financial priorities, for both now and your future, in order to determine how you should be allocating funds and diversifying risk within your portfolio. Your goals and your age are important factors for guiding how active you should be in the market, as well as the types of risk you should assume with your investments.
When the market tumbles as it did this past August, your portfolio may see some fluctuations. Understanding your risk tolerance will allow you to better manage through these unsettling times. Working with an advisor can help you hedge your investments in a manner that keeps your portfolio -- and your nerves -- steady over the long term.
Buy low, sell high. When you do see changes in your portfolio during a market downturn, don't assume it's immediately time to start selling. In fact, this could actually be an opportunity to take advantage of lower prices and add new stocks to your portfolio.
The old investing tenet says to "buy low and sell high." Many investors tend to see stock tickers turning red on their television screens and assume they should unload any "unpopular" or poor-performing investments. Before making any major buying or selling decisions, however, it's best to consult with your advisor again to get his or her perspective on how any volatility might impact you. Your retirement plan should be built with a long-term investing strategy in mind, so that it is able to withstand any unexpected turbulence.
Do a quarterly checkup. Often when the markets take a sudden dip, many of us become instantly glued to our computer or television screens in order to make the most educated investing decisions possible. Take advantage of this time to actually evaluate your current strategy. For most people, I'd recommend checking in on your investments about once a quarter.
You can also meet with your advisor or use an online planning tool, such as Voya's myOrangeMoney, to track if you are on the right path to meeting your future monthly income goals in retirement. Market volatility shouldn't necessarily be driving any changes to your strategy, but it may help to remind you to rebalance, adjust your plan, or revisit some important calculations. A market correction is a good excuse to think about potential portfolio corrections.
With a 24-hour news cycle telling us that markets are down day after day, it's easy to worry that the money you're working so hard to save now may not be there tomorrow, when you need it most. That's why it is important to create a holistic plan -- one that you stick to -- that can weather the short-term ups and downs and keep you on the straight and narrow to a financially secure retirement.
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