investing

Control What You Can When Volatility Shakes Market Confidence

Clearly the stock market is out of your personal control, but there are three specific things you can do to hang onto more of your retirement money regardless of what's rocking Wall Street.

If you often feel anxious about what’s happening with the stock market — especially in regard to your retirement savings — you’re not alone.

Emotional reactions to the daily ups and downs of both global and U.S. markets are so common that the financial education site Investopedia created the Investopedia Anxiety Index (IAI). This site charts investor sentiment based on reader interest in 12 financial terms, including words like “correction,” “bear market,” “bankruptcy” and “debt.”

It can be compelling — and oddly calming — to check the index and compare your concerns with millions of others around the world, helping you to understand that both good and bad times in the market — and the economy overall — is normal.

Still, it can be frustrating when you have no say or sway in what happens to your money day to day. This is exactly why I recommend focusing on the things you have more control over, instead of the things you don’t. There are steps you could take as an individual investor to help prop up your portfolio and keep more of your money for retirement, no matter what the market is doing. They include:

Minimizing fees

Most investors try to dial down the risk in their portfolio when they’re near or in retirement. You may decide to maintain a portion of your investments in the market to keep up with inflation over the years, but that doesn’t mean you have to overpay an “expert” money manager to beat a certain benchmark. That’s unnecessary when there are some really low-cost index funds and exchange traded funds (ETFs) designed to do just what the market does — no better and no worse.

There’s an old saying that retirement success isn’t determined by the money you make — it’s determined by the money you keep. A 1% management fee might not seem like a lot when you tip 20% at a restaurant or beauty salon. But if 1% equals $10,000 a year for the next 20 to 25 years, that’s hundreds of thousands of dollars leaking out of your portfolio. Be clear on what you’re getting for your money.

Minimizing taxes

When I ask investors what they think taxes are going to do in the future, they almost always say that, of course, they expect rates to go up. Then I ask if they’d rather pay taxes at rates they know or rates they don’t know but assume will be higher. And naturally they say they’d prefer to have some control and to pay the lowest rates possible.

Finally, I ask, “Did you get the federal government to tell you in writing what the tax rates are going to be when you turn 70½ or 80 or 85?”

That usually elicits a nervous laugh, but they get my point: If you’re putting most of your money in a tax-deferred retirement account — an IRA, 401(k), 403(b), etc. — the federal government is going to dictate how much you’ll owe in taxes when you eventually withdraw those funds, whether you choose to or you’re forced to.

That’s right: The IRS is letting you take all the investment risks, and it’s letting you pay all the investment fees. But someday — maybe when you’re 70½ and must withdraw your required minimum distributions (RMDs) — Uncle Sam is going to want a cut of the money you’ve saved and grown over all those years. You won’t know what the tax rate will be until that happens.

With that in mind, it may make sense to start converting some of your traditional IRA dollars to a Roth IRA now, while you know — thanks to recent tax reforms — what the rates are going to be for the next few years. You can’t control the tax rate; Congress does that. But by managing your income, you could help control your future tax bracket.

Minimizing risk

Most investors I meet with think they have a fairly conservative portfolio, and they’re sometimes shocked when they learn that isn’t true. Often, I find their confusion is caused by the pie chart on the front of their monthly investment statements. They think that chart is telling them how much risk they have, but it’s really only meant to show them where their money is.

So if, let’s say, you have 50% invested in stocks and 50% in bonds, but stocks are three times riskier than bonds, your portfolio risk is closer to 75-25 than 50-50. To avoid finding yourself in a more precarious position than you want, look at rebalancing.

Rebalancing will get the assets in your retirement account back to your target allocation — whether that’s 50-50, 60-40 or some other mix. While you’re at it, look for any redundancies in your mutual funds, and eliminate any product or strategy that isn’t moving you sensibly toward your retirement goals.

While others are flipping out about the current state of their stocks, some investors get serious about keeping all the money they can with solid maintenance. If you feel as though you’re losing ground (even when the markets are riding high), it could be because money has been trickling out of your portfolio without your even noticing.

Putty up the holes in your plan, and you may be surprised at how much you can save!

Kim Franke-Folstad contributed to this article.

Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Compass Retirement are not affiliated companies. Investing involves risk, including the potential loss of principal. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. Compass Retirement is not affiliated with the U.S. government or any governmental agency. 765902

About the Author

Scott Winstead, Investment Adviser Representative

Founder, Compass Retirement

As founder of Compass Retirement (www.compassretirement.com), Scott Winstead focuses on proper planning and education for pre-retirees and retirees. He is a Certified Education Consultant and a popular speaker with the nonprofit Foundation for Financial Education.

Most Popular

5 Best Dow Dividend Stocks to Buy Now
blue chip stocks

5 Best Dow Dividend Stocks to Buy Now

This mini-portfolio of blue-chip dividend payers is well-positioned to both generate income and hold up to headwinds for the rest of 2022.
June 27, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
Top Bear Market Tips from 10 Financial Advisers
investing

Top Bear Market Tips from 10 Financial Advisers

When a bull market turns into a bear market, it can be hard to know what to do. Take comfort in the guidance of 10 financial professionals.
June 30, 2022

Recommended

Is the Stock Market Closed for the Fourth of July in 2022?
Markets

Is the Stock Market Closed for the Fourth of July in 2022?

Independence Day falls on a Monday in 2022, so the bond and stock markets will enjoy a long holiday weekend. Here's a look at the markets' holiday hou…
July 1, 2022
Top Bear Market Tips from 10 Financial Advisers
investing

Top Bear Market Tips from 10 Financial Advisers

When a bull market turns into a bear market, it can be hard to know what to do. Take comfort in the guidance of 10 financial professionals.
June 30, 2022
In What Order Should You Tap Your Retirement Funds?
retirement planning

In What Order Should You Tap Your Retirement Funds?

Should you go with your IRA first or your brokerage account? Pulling money haphazardly can have negative implications. Instead follow this road map fo…
June 28, 2022
An Easy Way to Find How Much You Will Spend in Retirement
retirement planning

An Easy Way to Find How Much You Will Spend in Retirement

One simple math equation can help you determine where to start building your retirement income plan, and whether your money should last.
June 27, 2022