Nowadays, the word “volatility” seems thrown around more than ever. Usually, when it comes to financial talk, “volatility” is used to describe a downward trend. But that’s not what volatility really means! Volatility is technically referring to large up and down swings in the market over short periods of time. It doesn’t just mean a downward trend.
The Ups and the Downs
It’s important to make sure your financial plan is protected against downward trends. When markets are smoothly climbing, it can seem as if there is little danger involved in holding risky assets in your retirement portfolio. But suppose you don’t stay vigilant on how your risk tolerance is reflected in your investments. In that case, your risky assets could grow during smooth economic periods to become an oversized part of your portfolio. Then, when the markets eventually take a downturn, your accounts could be at greater risk of declining steeply in value.
That’s if a downturn happens… But what about true volatility? What about when markets jump one week and tumble the next? It can make you feel like one week you need to be more conservative and the next, more aggressive. If snappy headlines and emotions are getting the best of your strategy and you find yourself constantly rebalancing, you could incur high fees and end up selling when markets are low and buying when markets are high. All in all, this is an inadvisable plan, let alone a plan at all.
The Value of a Plan
Riding the markets by the seat of your pants is not a portfolio strategy that can consistently provide what you need in retirement. Instead, it’s crucial to ask yourself the following questions:
- Assess your retirement finances now.
- How much do you have saved?
- How much do you plan to have saved in retirement?
- Assess your costs.
- How much do your basic needs cost?
- How much do you think they will cost in the future?
- Assess how much income you will need to cover your basic costs.
- Based on your costs, how much will you need now and, in the future, to comfortably cover them?
- Assess your risk tolerance.
- How much will go towards providing you a stable income that covers your costs in retirement?
- Based on that number, how much are you willing to put towards riskier, higher-growth assets?
- If you’re not retired, how much more do you need to meet your retirement goals?
This set of questions only scratches the surface of how you can thrive through retirement without worrying about everyday market swings. Healthcare costs, tax strategy, multiple sources of income, where you live, what assets you currently have and how liquid they are, and many other factors, all influence how your ideal retirement plan can be sculpted. But that’s easier said than done. Click here to sign up to get started on constructing a retirement plan that works for you.
Please Note: Epstein & White is a tradename. All services provided by Epstein & White investment professionals are provided in their individual capacities as investment adviser representatives of Mercer Global Advisors Inc. (“Mercer Advisors”), an SEC registered investment adviser principally located in Denver, Colorado, with various branch offices throughout the United States doing business under different tradenames, including Epstein & White. Information contained herein is for informational and illustrative purposes only and general in nature. It should not be considered investment advice or a recommendation to buy or sell any type of securities or insurance products and no investment decision should be made based solely on any information provided herein. We provide this information with the understanding that we are not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas.
Investment in securities carries a risk of loss, including loss of principal amount invested. Different types of investments involve varying degrees of risk. It should not be assumed that diversification or asset allocation protects a portfolio from loss or that such will produce profitable results. An annuity’s guarantee is subject to the claims-paying ability of the issuing insurance company.