Here’s How To Avoid the Biggest Mistake Retirement Savers Make During a Market Downturn
“By identifying vulnerabilities now, you can adjust your asset allocation, spending plans, and protection strategies while markets are favorable rather than being forced to make difficult decisions under pressure during volatility,” said Gibson.
You and your advisor can also treat market volatility as a chance to assess your overall financial plan. Ask whether your asset allocation still matches your risk tolerance, whether this is the right time to implement guaranteed income strategies and how much risk you can realistically take on.
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See Challenges as Opportunities
Not only does Gibson want you to keep your cool during a market pullback, she encourages you to see volatility as an opportunity — particularly if you’re new to investing.
“When stock prices fall, your regular retirement contributions are essentially purchasing investments at a discount,” she said. “This is particularly powerful for younger investors with longer time horizons who can benefit from decades of potential growth. It’s never too early to start saving for retirement when you have the power of compounding on your side.”
Use Stable Times to Your Advantage
Gibson also wants you to take advantage of the calmer cycles in the market to build a resilient portfolio. After all, what goes up will, eventually, come back down — but preparation now can soften the landing.
“Ensure your portfolio has appropriate diversification across and within asset classes that can withstand different market conditions,” she said. “Because it’s not a matter of if there will be more market volatility, but when.”
Build in Dependable Income Sources
One way to mitigate market risks — and your anxieties — is to integrate more reliable sources of income into your retirement plan. Gibson is a fan of fixed annuities, describing them as a dependable retirement paycheck.
“Whether you live to 73 or 103, lifetime income provides a minimum monthly payout for as long as you live and can still protect your beneficiaries if you die early,” she said. “Historically, fixed annuities have been lumped into the fixed income category because many of the underlying investments are bonds. However, fixed annuities perform quite differently from bonds or bond funds, especially when interest rates are rising or falling.”
She’s keen on fixed annuities from highly rated insurance firms because, unlike bonds and bond funds, whose market values decline as interest rates rise, they can offer a steady return and principal protection when held as intended, subject to the insurer’s claims-paying ability. (Fees, surrender charges and product features vary, so review details before you buy.) This dependability can work wonders for your peace of mind.
“Knowing your essential expenses in retirement will be covered regardless of market performance creates the emotional foundation to weather any market storm,” she said. “When you’ve protected what matters most, temporary market fluctuations become much easier to endure.”
Bottom Line
Kourtney Gibson is well aware that market volatility is scary, particularly when you feel like your security in retirement is on the line. But you don’t have to be a genius at predicting market movements to come out on top — the advantage belongs to people who know how to use market conditions (yes, including downturns) within their strategies.
“Market declines are usually temporary, but the advantages gained from strategic moves made during periods of calm can be permanent,” she said. “Your goal isn’t to perfect market timing, but to build a resilient retirement strategy that performs across all market environments.”
This article is part of GOBankingRates’ Top 100 Money Experts series, where we spotlight expert answers to the biggest financial questions Americans are asking. Have a question of your own? Share it on our hub — and you’ll be entered for a chance to win $500.
This article is for informational purposes only and does not constitute financial advice. Investing involves risk, including the possible loss of principal. Always consider your individual circumstances and consult with a qualified financial advisor before making investment decisions.
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