You may be surprised, especially if you are nearing or into your retirement years, by the ups and downs in the market this week. If so, you’re in good company, even with some market analysts. Truth is, while we may expect volatility and bumps in the road, it’s difficult to predict the exact timing. Instead. focus on what you can control.
Our brains love, love, love shortcuts. Making leaps of logic that lead us to think we know more than we do, or allow us to believe we can time the markets, but that just isn’t the case. In hindsight, it’s often clear that impulsive reactions to the markets can cause trouble. There’s even a whole field of study called behavioral finance that delves into how investors tend to succumb to emotional impulses – instead of conducting logical analysis. For example, investors who simply stayed invested between 2007 and 2013 almost certainly did better than most who tried to time a very volatile market. While we don’t know what the markets will do over the short or mid term, we do have a better idea of how markets historically climb slowly and steadily over longer time periods.
Part of the answer is to reframe our perspective – to pay less attention to the headlines and more attention to our goals. Having a clear idea of why you’re in the market and how you want your investments to serve you makes it much easier to be disciplined. It’s important therefore, to regularly revisit and reaffirm your personal goals and time horizon. You’re investing in order to achieve certain objectives. Your decisions should rest on that foundation.
Get in the mix
Your asset allocation model – the mix of stocks, bonds and cash designed to achieve your financial goals – isn’t something you set and forget. Especially near and through retirement years, monitoring regularly is advantageous to be sure it’s reflecting changes in market conditions, as well as in your personal life. If things are on track, fine. If they’re not, you may have to make some adjustments – either to your goals, financial plan or the model itself.
When designing the mix right for you, you should truly understand your long-term ability to withstand markets’ highs and lows, zigs and zags. Yes, we’re talking about risk tolerance because that’s what informs your asset allocation. And that, in turn, gives your financial plan the best chance of making it through the markets’ inevitable ups and downs.
Cultivate Reliable Income
You can also diversify your income. In addition to Social Security income, pensions, and required minimum distributions, retirees can possess healthy, diversified cash flow with dividends, bond yields, a part-time job, rental income, etc.
When you’re comparing dividend stocks, consider companies with low debt-to-equity ratios, strong balance sheets and a history of consistently increasing dividends. In addition to this, you can plan ahead by having plenty of easy-to-access liquidity so your investment plan can remain uninterrupted.
You may also want to consider income streams that aren’t impacted by the market, like annuities or lines of credit, though it’s important to thoroughly understand these potential contracts, their costs – both seen and unseen, and the certainty (or not) of whether they will deliver what you need / want, with the right timing of when you need or want that option. Pursuing a second opinion and thoroughly understanding your choices of ‘what else is out there’ and ‘what do I not know, I don’t know’ is overwhelmingly prudent.
Let it Go
Remember, too, that the securities you own work for you – don’t hesitate to fire one that isn’t doing its job or no longer meets your needs, or to add to positions that are advancing your financial goals. This is behavioral finance 101: Don’t be sentimental. Unless there are significant tax or other considerations, don’t let the difficulty of acknowledging mistakes or taking losses keep you from positioning your portfolio for the road ahead.
Market volatility is an inevitable part of investing. There are always challenges and opportunities. Their nature may change from one period to another, but investing is and always will be, about thoughtfully taking on risk for potential reward. Investing intelligently – knowing what you own and why – is how you make steady progress toward what you hope to achieve.
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC.© 2021 Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. King Financial Partners is not a registered broker/dealer and is independent of Raymond James Financial Services. There is no assurance any investment strategy will be successful. Investing involves risk and investors may incur a profit or a loss. Past performance may not be indicative of future results. Diversification and asset allocation do not ensure a profit or protect against a loss. The process of rebalancing your portfolio may rasult in tax consequences. Dividends are not guaranteed and will fluctuate. Sources: Russell Investments; smartasset.com; money.usnews.com; wikihow.com; money.cnn.com; Raymond James white paper, “Asset Allocation, A Guide to the Fundamentals of Portfolio Construction”; Raymond James Worthwhile Fall 2020, 361 Capital; B2B International; Business Insider: Bloomberg Businessweek; investopedia.com; Franklin Templeton; Standard & Poor’s; marketwatch.com; dalbar.com