Photo of a man considering how market volatility will affect his investments as he is close to retirement.

Investing near retirement: 4 tips to keep in mind during market volatility

You’re getting closer to retirement after years of saving and investing and planning for the next chapter of your life.

And then the markets start bouncing around. Naturally, you think about your retirement savings. Should I be worried about my investments? Will I need to change my plans? Should I stop saving until things settle down? Do I change what I’m invested in?

That’s how easy it is for emotion to influence your financial decisions.

Countering that emotion isn’t easy, especially when we’re in the middle of a pandemic. But it’s feasible if you have a plan.

Here are a few ways to manage your emotions when it comes to retirement money and market volatility.

1. The news headlines can be unsettling, but don't lose sight of your long-term retirement goals.

The news is full of attention-grabbing headlines that change every day—every hour. And when they focus on financial markets, it can be easy for retirement savers to get overwhelmed by stories about volatility.

“Keep thinking further ahead, not just about what happened today or this week,” says Heather Winston, assistant director of financial advice and planning at Principal®. She suggests making clear retirement goals and setting a timeline to reach them.

If housing prices fall suddenly, your first reaction probably isn’t to immediately sell your house and sleep in your car. That’s because you’re focused on your long-term need for a place to live. You can develop the same mentality for your retirement investments.

“It’s normal to worry about investment losses, but don’t forget about the gains you’ve made over the years,” Winston says. “A solid plan can help anchor your emotions and help keep you from making costly snap decisions.”

If housing prices fall suddenly, your first reaction probably isn’t to immediately sell your house and sleep in your car. That’s because you’re focused on your long-term need for a place to live. You can develop the same mentality for your retirement investments.

2. Focus on what you can control.

So what can you do? Concentrate on the things you can control to help you take your focus off the short term. For example, you can adjust how much you’re contributing to your retirement and the amount of risk you take.

  • Consider boosting your salary deferral contributions each year to your individual retirement account (IRA) or 401(k). Even better, choose to have your deferral automatically increase, if your employer offers that option.
  • You may decide on a mix of investments that matches your tolerance for risk. (Take this short quiz (PDF) to double-check your risk tolerance.)
  • Connect with a financial professional to occasionally review and rebalance your investment choices, but not so often that you get caught up in every little market flutter.
  • Another potential option is a target date fund, an investment strategy that handles the asset allocation and rebalancing for you. Using a predetermined strategy, the professional manager of the fund does the researching, investing, and rebalancing based on the portfolio’s target date, which may be the date closest to when you want to retire.

The emotions of investing

Some studies suggest that the emotional pain of a loss is twice as powerful as the feeling of capturing a gain.1 Your brain is trying to help you avoid that pain. When it comes to your retirement investments, this tendency could lead you to accept lower return potential—and lower growth of your money—as you try to avoid further pain by moving to less risky investment options after a loss.

“When markets go down, people look at their investment statements and don’t like the numbers,” Winston says. “That’s a normal reaction. But changing your investments because of what you see on a statement at one point in time vs. a longer-term view may not necessarily be rational.”

That’s when having a plan, or a trusted financial professional, can help you stick to your long-term goals.

3. Keep your retirement investment options manageable.

When faced with a lot of investment options you could find yourself in the grip of what Winston calls “decision paralysis.” Some people may cope by opting for “safer,” lower-risk investments—but these investments often have lower potential returns as well.

“The safest choice may not always be your best option if you want long-term growth,” Winston says. With any decision about your investments, there are trade-offs. An investment strategy with low-risk investments may mean you need to work longer or spend less in retirement.

Select the mix of investments that’s right for you and adapt your asset allocation plan based on your short- and long-term needs.

4. Get help from a financial professional when you need it.

Volatile markets can make people nervous and uncertain about their decisions. And that’s completely normal. Keeping up with the news is good, but you know your specific situation and how markets affect you. That’s why having a relationship with a financial professional can help.

“Listening to the news for investment advice can be like diagnosing yourself using medical articles from the internet—informative, but not always applicable to your situation,” Winston says. “If you want to know how market moves could affect you and your plans for retirement, you may need more personalized attention.”

A financial professional can help you put together a long-term plan. Or just talk you through what’s happening in the news that you don’t understand. “Sometimes people feel better talking things through with a trusted financial professional,” Winston says, “even if the conversation validates what they already know.”

Listening to the news for investment advice can be like diagnosing yourself using medical articles from the internet—informative, but not always applicable to your situation.”

Heather Winston, assistant director of financial advice and planning

Next steps

1 Kahneman, D. and Tversky, A. “Advances in prospect theory: Cumulative representation of uncertainty.” Journal of Risk and Uncertainty. 5(4): pages 297-323. 1992

About Target Date investment options:

Target date portfolios are managed toward a particular target date, or the approximate date the investor is expected to start withdrawing money from the portfolio. As each target date portfolio approaches its target date, the investment mix becomes more conservative by increasing exposure to generally more conservative investments and reducing exposure to typically more aggressive investments. Neither the principal nor the underlying assets of target date portfolios are guaranteed at any time, including the target date. Investment risk remains at all times. Asset allocation and diversification do not ensure a profit or protect against a loss. Be sure to see the relevant prospectus or offering document for full discussion of a target date investment option including determination of when the portfolio achieves its most conservative allocation.

Important Information

Increasing your contribution does not guarantee you put yourself in a better spot.

Investing involves risk, including possible loss of principal.

Asset allocation and diversification does not ensure a profit or protect against a loss. Equity investment options involve greater risk, including heightened volatility, than fixed-income investment options. Fixed-income investments are subject to interest rate risk; as interest rates rise their value will decline. International and global investing involves greater risks such as currency fluctuations, political/social instability and differing accounting standards.  These risks are magnified in emerging markets.

There is no guarantee that a target date investment will provide adequate income at or through retirement.  Participants may also choose a portfolio with a target date that does not match the intended retirement date. Compare the different portfolios to see how the mix of investments might shift.

Investment advisory products offered through Principal Advised Services, LLC. Principal Advised Services is a member of the Principal Financial Group®, Des Moines, IA 50392.

The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.

Insurance products and plan administrative services provided through Principal Life Insurance Co. Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc. Securities offered through Principal Securities, Inc., 800-547-7754, member SIPC and/or independent broker-dealers. Principal Life, Principal Funds Distributor, Inc. and Principal Securities® are members of the Principal Financial Group®, Des Moines, IA 50392.

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