The stock market can be unpredictable, but with the right strategies and expert advice, baby boomers can safeguard their retirement plans against volatility. Stock market volatility occurs when the market increases or decreases over a particular period. Higher volatility generally means higher risk and is often associated with political and economic factors.
This was well proven during both the mortgage crisis and the COVID-19 panic. Even with relatively stable trends over the last 15 years, many baby boomers think the market is safe. However, stock market volatility is normal, which does not mean baby boomers should keep all their money in one place.
Understanding market risks is crucial, and there are a few important factors to remember:
1. Do not act impulsively: Acting out of impulse can lead to unnecessary losses or missed gains.
2. Do not let emotions run your portfolio: Emotional concerns over losses should not guide your decisions.
Managing stock volatility for retirees
3. Avoid making big moves based on short-term market conditions: Market downturns like the one seen at the start of COVID-19 are typically temporary, and the market often recovers. Ensuring a diversified portfolio is essential to mitigate market volatility. This means investing in different asset classes, such as ETFs, high-yield savings accounts, CDs, mutual funds, and bonds, and maintaining a strong cash reserve.
Picking up a mutual fund with multiple stocks can reduce risk. Investing in income-focused funds, such as dividend-paying stocks or real estate investment trusts, can help generate stable earnings with less volatility. One of the most important strategies is having cash reserves.
For retirees without additional income, having enough cash to cover 6 months to a year of living expenses can offer a buffer against volatility and peace of mind. Ideally, baby boomers should plan for 1-2 years of cash reserves to handle emergencies comfortably, considering historical market downturns have lasted around 18 months. Planning for retirement can be overwhelming, so speaking to a fiduciary financial advisor about your goals might be wise.
