In late 2018, the stock market experienced what some call a “mini-crash.” Investors nearing retirement and hoping to exit the market and workforce on a high note watched as their plans took an unexpected downturn, leaving some dismayed and uncertain about their financial future.
In anticipation of further potential volatility and corrections in the market, pre-retirees may need to change course if they want to make the most of their current investments. If you find yourself in the same boat, follow this advice from Forbes Finance Council.
1. Diversify Your Retirement Income Strategies
The answer to stabilizing your retirement through up and down years, particularly when you are starting your retirement journey, is to have alternate sources to pull income from if you start your retirement during a down year. Having this alternative source will allow you to weather the storm and strengthen your retirement portfolio throughout your retirement journey. - Scott Karstens, NFG Brokerage
2. Build A ‘War Chest’ Of Safe Assets
Near-retirees face the possibility of retiring into a bad stock market, forcing them to sell when stocks are deeply on sale. To avoid this timing problem, build a war chest of safe assets five years before retirement, with the remainder invested in a diversified stock portfolio. In retirement, draw from the safe assets first, then refill this bucket by harvesting gains when stocks rebound. - Erik Christman, Oxford Financial Partners
3. Start Conservatively, Then Become More Aggressive
The roller coaster ride stocks have taken recently is enough to make any investor nervous. Investors with longer windows before retirement can wait out volatility. For those planning to retire within five years or fewer, an adjustment may be in order. Investors who start their retirement window being conservative and gradually becoming more aggressive often have better outcomes. - Ismael Wrixen, FE International
4. Look For Equities That Pay Dividends
In recent years, each market downturn was subsequently followed by a period in which there was an upward trend. If the pre-retiree is comfortable with the principal amount they have saved, then they should roll it into more equities that pay dividends. This would help mitigate any loss of principal during a downward trend, but also still pay out a dividend that can be used for monthly expenses. - Jared Weitz, United Capital Source Inc.
5. Have A Plan For Meeting Inflation-Adjusted Expenses In Retirement
If market volatility scares you, don’t invest in the market without a good advisor and, more importantly, a great plan. Any good plan will account for how you’ll meet inflation-adjusted expenses over your lifetime. Since you don’t want to run out of money, you may have to accept lower growth to secure the longevity of cash flow. One key is having a clear understanding of your household budget. - Ivan Illán
6. Look Into Alternative Investment Options
Consider diversifying outside of the stock market and into alternative investments. Specifically, investing in mortgage notes or trust deeds presents investors with fixed, predictable returns while minimizing the risk, because investment is backed by the real property. However, doing so requires a self-directed IRA or a Solo 401(k). These vehicles allow account holders alternative investment options. - Dmitriy Fomichenko, Sense Financial Services LLC
7. Don’t Take Any Big Risks Right Before Retirement
If you are getting ready to retire, now is not the time to take risks with your investments. Spend time with your financial advisor looking at what your post-retirement needs will be and how your investments are lining up to meet them. Make sure your portfolio is secure and won’t be affected negatively by drastic changes in the market. Make smart moves to shore up any shortfalls, and sit tight. - Jeff Pitta, Senior Market Advisors
8. Remain Active And Watch The Trends
Don’t just sit on your heels waiting for the funds to roll in. Remain active in the market and keep an eye on the trends. To keep your money growing in a volatile stock market, watch stocks that remain consistent, and reallocate your funds conservatively. While you can’t predict the market, you can keep an eye on investments that are growing steady and strong. - Greg Herlean, Horizon Trust
9. Don’t Try To Time The Market
Trying to time the market is never a good strategy. If you are nearing retirement and have enough money for 20 to 25 years of living expenses, at least, then you have enough time to recover any losses, even cashing out 3% to 5% for what you need today. Stick with your diversified portfolio strategy and let the stock market do what it does. - Vlad Rusz, Vlad Corp. USA
10. Match Your Portfolio To Your Needs
Make sure your portfolio matches your needs. The money you need in the next five years should be in bonds; for anything beyond that, consider more growth-oriented investments like stocks. Never try to guess the market, as market drops can happen any time for any reason. Peter Mallouk, Creative Planning