The stock market is a roller coaster this week — and not everyone likes roller coasters, especially when they cause retirement account balances to drop.
The ups and downs are due in part to the fears surrounding the omicron variant of COVID-19 and the U.S. economy (the number of people applying for unemployment jumped from a 52-week low around Thanksgiving). On Thursday, stock indexes slightly rebounded at the market’s open, but investors paying close attention to their retirement accounts may have seen their balances drop lower and lower the days before.
Financial planners typically suggest investors should avoid checking their retirement accounts too often — especially when the market is jumpy — but that can be hard for some individuals, especially if they’re not comfortable with investing or they’re close to their retirement years. Losses can — or at least appear to — lower the chances of sustaining retirement security.
See:The omicron panic is overdone. Buy the dips in these stocks, says JPMorgan
Here are a few things you can do if you’re within a decade or so of retirement and can’t stomach the volatility:
Check your asset allocation
During a downturn is not usually the time to make changes to your investment portfolio, but if a slight tick downward is causing excessive stress, it can be a good time to check your asset allocation and how it aligns with your risk tolerance.
Risk tolerance and risk capacity are two very separate, but important, concepts when making a portfolio. The first relates to the risk someone is comfortable having in their accounts — for example, someone who goes to the Las Vegas casinos and doesn’t mind major losses at the blackjack table has a high risk tolerance — whereas risk capacity is tied to how much risk a portfolio can or should allow for to meet the individual’s goals. The two are not always in sync, and people who are worried about their portfolios should talk to a financial planner who can help adjust the portfolio during the appropriate moment, or find ways to accept the ups and downs.
“Everyone is different and good investment strategies need to account for this,” said Howard Pressman, a certified financial planner and partner at EBW Financial Planning. “The last 10 years or so have lured investors into a false sense of comfort and many people who are not suited for aggressive investing portfolios are, in fact, invested this way.”
Consider the bucket strategy
A financial planner takes into account all income streams expected in retirement, and implements a strategy for investments that encompasses risk tolerance as well. “For example, we find out …….