Investment volatility is a big fear and this fear is much greater for people close to retirement and the obvious reason is time. Time can help younger investors recover from market instability, but older investors may worry due to the many risks they will envisage.
As an investor close to retirement, keeping an all-cash portfolio may help you deal with volatility in the short term, but it would rarely help you keep up with price increases in the future. Having some cash will, however, help reduce potential losses when markets fall. It is, therefore, a good idea to use cash for living expenses instead of selling stocks at their low point, because history shows that markets typically rebound over time. This is also where having a robust retirement savings account or other additional investments such as bonds have a great advantage because they will reduce your equity investment withdrawal rate while giving you more time to wait out market volatility.
Putting it simply: Try to avoid reallocating all your assets when the market is volatile. If you diversified according to your time limit, goals and risk tolerance, a temporary downturn shouldn’t make you let go of your equity investments or drastically change your portfolio’s composition.
Consider beefing up your RSA with Additional Voluntary Contributions. Learn more at www.armpension.com/avc
Adapted from “Confronting 3 common financial fears” by Financial Writer Jack Fehr