Here’s How To Avoid the Biggest Mistake Retirement Savers Make During a Market Downturn
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What goes up must come down again: This old saying applies to almost every area of life, and the stock market is no exception. If there’s one constant in the market, it’s change — sometimes thrilling, sometimes alarming — especially if you’ve been saving for retirement and have a nest egg you want to protect. A volatile market can conjure images of smashed eggs.
If anyone understands those anxieties — and how to overcome them — it’s Kourtney Gibson, CEO of TIAA Retirement Solutions. While you can’t control the grand ups and downs of the market, Gibson notes that there’s more within your control than you might think — starting with your reactions.
Don’t Let Emotions Get the Better of You
When headline after headline portends market disaster and, to be honest, the market reports don’t look great, either, panic seems like a natural reaction. But reacting out of emotion — for example, pulling your money out of the market altogether — is counterproductive to your goals of building secure retirement savings, according to Gibson. She’d rather you avoid playing Nostradamus and stick to the plans you’ve already set in motion.
“The biggest mistake retirement savers make during market downturns is letting short-term emotions override long-term strategies,” she said. “Markets will rise and fall, but investors who attempt to predict these shifts often end up worse off than those who stay anchored to their long-term financial plans.”
For Gibson, the most successful investors realize that being patient and consistent, even in turbulent times, tends to yield greater returns. To keep from being blown about by storms of anxiety, she recommends having a written, defined investment plan for your retirement savings based on your personal goals.
“Rather than altering your carefully crafted investment plan in response to fleeting market movements, maintain focus on your long-term objectives — despite the temptation to act on market headlines or make decisions based on fear,” she said.
Do a Risk Assessment With a Trusted Financial Advisor
Staying calm doesn’t mean doing nothing in response to volatility. Far from it. Gibson wants you to consult a trusted financial advisor (and if you don’t have one, she suggests now’s the time to find one) to gain clarity into how various risks can impact your portfolio or limit your ability to save. Think of it as a stress test for your investments: How would your current asset allocation perform across different market scenarios?
“By identifying vulnerabilities now, you can adjust your asset allocation, spending plans, and protection strategies while markets are favorable rather than being forced to make difficult decisions under pressure during volatility,” said Gibson.
You and your advisor can also treat market volatility as a chance to assess your overall financial plan. Ask whether your asset allocation still matches your risk tolerance, whether this is the right time to implement guaranteed income strategies and how much risk you can realistically take on.
See Challenges as Opportunities
Not only does Gibson want you to keep your cool during a market pullback, she encourages you to see volatility as an opportunity — particularly if you’re new to investing.
“When stock prices fall, your regular retirement contributions are essentially purchasing investments at a discount,” she said. “This is particularly powerful for younger investors with longer time horizons who can benefit from decades of potential growth. It’s never too early to start saving for retirement when you have the power of compounding on your side.”
Use Stable Times to Your Advantage
Gibson also wants you to take advantage of the calmer cycles in the market to build a resilient portfolio. After all, what goes up will, eventually, come back down — but preparation now can soften the landing.
“Ensure your portfolio has appropriate diversification across and within asset classes that can withstand different market conditions,” she said. “Because it’s not a matter of if there will be more market volatility, but when.”
Build in Dependable Income Sources
One way to mitigate market risks — and your anxieties — is to integrate more reliable sources of income into your retirement plan. Gibson is a fan of fixed annuities, describing them as a dependable retirement paycheck.
“Whether you live to 73 or 103, lifetime income provides a minimum monthly payout for as long as you live and can still protect your beneficiaries if you die early,” she said. “Historically, fixed annuities have been lumped into the fixed income category because many of the underlying investments are bonds. However, fixed annuities perform quite differently from bonds or bond funds, especially when interest rates are rising or falling.”
She’s keen on fixed annuities from highly rated insurance firms because, unlike bonds and bond funds, whose market values decline as interest rates rise, they can offer a steady return and principal protection when held as intended, subject to the insurer’s claims-paying ability. (Fees, surrender charges and product features vary, so review details before you buy.) This dependability can work wonders for your peace of mind.
“Knowing your essential expenses in retirement will be covered regardless of market performance creates the emotional foundation to weather any market storm,” she said. “When you’ve protected what matters most, temporary market fluctuations become much easier to endure.”
Bottom Line
Kourtney Gibson is well aware that market volatility is scary, particularly when you feel like your security in retirement is on the line. But you don’t have to be a genius at predicting market movements to come out on top — the advantage belongs to people who know how to use market conditions (yes, including downturns) within their strategies.
“Market declines are usually temporary, but the advantages gained from strategic moves made during periods of calm can be permanent,” she said. “Your goal isn’t to perfect market timing, but to build a resilient retirement strategy that performs across all market environments.”
This article is part of GOBankingRates’ Top 100 Money Experts series, where we spotlight expert answers to the biggest financial questions Americans are asking. Have a question of your own? Share it on our hub — and you’ll be entered for a chance to win $500.
This article is for informational purposes only and does not constitute financial advice. Investing involves risk, including the possible loss of principal. Always consider your individual circumstances and consult with a qualified financial advisor before making investment decisions.
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