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

Worried about market volatility? How you can be prepared when it’s bumpy out there

So the markets have been a little bumpier than normal this year due to the uncertainty of COVID-19 (coronavirus), concerns about the economy, and the United States election. And that’s had some people on edge.

While ongoing volatility and the sting of short-term losses might leave you feeling anxious, we have a few tips that may help you handle your emotions as you’re saving for retirement.

Here are three things that can help you prepare and move forward with investing for the long-term.

1. Let the markets be volatile. But focus on stability.

“Market volatility can be a good thing,” says Stanley Poorman, advice and planning manager with Principal®.

That sounds weird, right?

“When the news talks about volatility,” Poorman explains, “it’s usually just when the market’s gone down. But healthy markets have some volatility. They go up and down. And that’s part of what helps equity markets deliver returns over time.”

Volatility is a (relatively) short-term phenomenon. One secret to being a prepared investor is focusing on a long-term plan—such as your retirement goals, even though it could be up to 30 or more years in the future.

Consider basing your investment choices and changes on stable, long-term 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.

2. Focus on what you can control with your retirement savings.

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

  • A diversified mix of investments options may better align your account with your risk tolerance and may help smooth 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 stay in balance with your long-term goals. You may want to set up a rebalancing plan (PDF), and then mark your calendar (or set up automatic rebalancing online) to review your asset allocation. That way, any changes you make can be thoughtful and regular, rather than impulsive and reactive.

Since you can’t control market volatility … spend your mental energy on factors you can control.”

Stanley Poorman, advice and planning manager

  • 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 specific 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.”

You can always select one of the other investments in the target date fund series if a different 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.

3. Talk to a financial professional for some perspective.

“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 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 markets.

Next steps

  • Are you investing and near retirement? If market volatility makes you nervous, here are a few ways to counter those reactions when it comes to your hard-earned retirement dollars.
  • Want help with your retirement journey? A financial professional can help you with 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.

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.

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.

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®.