It would be an understatement to say people are nervous about their retirement accounts right now. The market continues to climb while every red flag in the financial world is being raised. I touch on this topic often with clients & prospects alike. People are concerned the next drop will be the one that they never recover from. So, what do you do when you don't know what to do? After all, it's a valid concern about the money that you worked hard to acquire.
First of all, let's be realistic. Volatility has been around since day one of investing. If you want returns, you have to take on risk. There are no exceptions to this rule, ever! As a country, we have been through incredible periods of volatility in the past that have tested the nerves of the most seasoned investor. The Great Depression, Great Recession, multiple wars, Black Monday, soaring inflation & now, Covid, just to name a few. After each of these events, the market recovered and climbed to new heights. I've heard people say a thousand times now, this time is gonna be different. Well, that's not what history suggests. It's also not what the greatest investors & economists suggest either. So should you listen to the research of the finest economics masters & best investors to ever play the game, or, should you let the fear-inducing media scare you off the field and onto the bench?
Before you get into the market, you need to understand what your level of risk looks like. It's not a question of if you lose money, but when. If you invest money, you will absolutely have bad years now and again. There's no getting around it. You need to identify what level of loss you would be comfortable tolerating well before you ever invest. Most tend to want the largest returns with no risk. Newsflash: that doesn't exist. Risk and return are relative to one another. The larger the potential return, the larger the risk. Pretty simple. You can greatly reduce your emotional turmoil during a falling market by having a portfolio that is within your comfort zone from the start.
If you asked 10 different financial advisors about timing the market, they would likely all have varying opinions, but I'd bet you they would all be against it. They'd tell you to stay in the market during the good times & the bad. Otherwise, you are likely to miss out on the good times too. There are people who time the market perfectly. Not many, but they do exist. It's called getting lucky. I don't care how much experience you do or don't have. You got lucky. Don't leave it to chance. Work with someone you trust to help navigate you through the rough waters. Volatility is permanent and here to stay. Understanding what your portfolio would look like during a bad market is important so you don't let your emotions cause you to do something you'd regret later.