Market volatility: How to stay calm when the market isn't

Photo of a young woman who is staying calm during market volatility.

Sometimes investing can feel like flying through a thunderstorm. Lots of bumps and noise. Hard to see what’s going on. People gripping their armrests in panic.

But there’s always someone who calmly sleeps through the whole ordeal.

What’s her secret?

More importantly, how can you be that person—calmly pushing forward—when it comes to saving for your retirement?

While volatility (or, the turbulence of market swings) and the sting of short-term losses might leave you feeling anxious, there are some ways that may help you handle the emotions that can go along with saving for your retirement.

Let the markets be volatile. But focus on stability.

“Market volatility can be a good thing,” says Stanley Poorman, CFP®, a financial professional with Principal®.

That sounds weird, right?

“When the news talks about volatility,” Poorman says, “it’s usually just when the market’s gone down. But healthy markets have some volatility. They go up and down. And volatility is part of what helps allow equity markets deliver returns over time.” But volatility is a short-term phenomenon.

Healthy markets have some volatility.”

Stanley Poorman, CFP, financial professional with Principal

One of the secrets to being a calm investor is focusing on a long-term plan—such as your retirement goals. Investing to avoid volatility is kind of like deciding on a flight because you think it’ll have the least turbulence. The main goal (long-term) of flying is to get somewhere far away. And when you’ve arrived at your destination, you’ve all but forgotten the bumpy ride.

The destination for your retirement saving is living the life you want in retirement—and that could be up to 30 years in the future.

Consider basing your investment choices and changes on a set of stable, long-term investment goals and your ultimate retirement date, not daily news about short-term market swings. Keeping your eye on the destination may help you ride out the bumps along the way.

Focus on what you can control with your retirement saving.

You can’t control turbulence. But you can choose to fly during the morning, when there’s typically less turbulence. It’s similar with investing.

“Since you can’t control market volatility, it’s better to spend your mental energy on factors you can control,” Poorman says.

Such as the mix of your investments. A diversified mix of investment options may better align your account with your tolerance for risk and may help smooth out the ups and downs of the market. “Not all investment options go up and down at the same time,” Poorman says. For example, having some funds in fixed income investment options may help dampen the volatility from your equity investments.

Your investment mix may need shifting occasionally to keep everything in balance with your long-term goals. If this is right for your goals, you could set up a rebalancing plan (PDF). Then mark your calendar (or set up automatic rebalancing online) to review your investment elections. That way, investment changes can be thoughtful and regular, rather than impulsive and reactive.

 ... spend your mental energy on factors you can control.”

Stanley Poorman

Or just let an investment option handle asset allocation and rebalancing for you altogether. “A target date fund uses a professional manager to allocate assets with a particular retirement date in mind,” Poorman says. “These options can help take some of the stress out of the equation. You pick the date closest to when you’d like to retire and let the professional do the work of researching, investing, and rebalancing.” It should be noted that you can always select one of the other investments in the target date fund series if another mix of investments better aligns with your risk tolerance.

You can also control how much you’re contributing. If your account takes a dip, you could increase contributions to help to make up for lower returns. If markets have dropped, your contributions may go a bit further now by allowing you to buy more.

Talk to an investment professional for some perspective.

Ever wonder why the pilot always sounds so calm—even on the most turbulent flight ever? It’s because she’s been through this same situation hundreds or thousands of times. So even when lightning flashes, she’s got experience and expertise and to calmly keep things on track.

You can tap into a similar resource for your retirement saving. “Sitting down with a financial professional can lend perspective to your plans,” Poorman says. “They can help you understand what’s happening and how it affects your retirement.”

And if you don’t have a solid retirement plan, they can get you started.

Whether you need to find a financial professional or just touch base with your current one, put a date on your calendar right now for this conversation so you can better navigate the next bumpy flight.

What to do next?

  • Have a retirement account from your employer with service at Principal®? Log in to principal.com to see where your retirement is at. First time logging in? Get started.
  • Want help with your retirement journey? A financial professional can help you put together a plan or discuss how markets are affecting your retirement. If you’d like to meet face to face, find one near you.

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.

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.

The commentary represents the opinions of Principal Global Investors. It should not be considered investment advice. No forecast based on the opinions expressed can be guaranteed and may be subject to change without notice. No investment strategy, such as diversification, can guarantee profit or protect against loss.

Investing involves risk, including possible loss of principal.

Asset allocation and diversification do 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.

Insurance products and plan administrative services provided through Principal Life Insurance Co. Securities offered through Principal Securities, Inc., 800-547-7754, member SIPC and/or independent broker-dealers. Principal Life, and Principal Securities are members of the Principal Financial Group®, Des Moines, Iowa 50392. Principal Global Investors leads global asset management and is a member of the Principal Financial Group®.
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