When the Market Wobbles, Replace Panic with a Plan

Panic is not a pretty emotion — and it can be especially detrimental when it comes to investing.

Indeed, financial experts often warn that the biggest threat to your retirement savings isn’t necessarily volatility but how and when you react to the market’s inevitable fluctuations.

Yet, we’ve all become so accustomed to the seemingly unending upward movement in the stock market that it’s a little unnerving to watch it wobble. Who wants to be reminded that what goes up must come down and that pullbacks of 5% to 10% are normal?

Certainly not retirees and soon-to-be retirees, who will be depending on their investments to pay their bills for years or even decades to come. When you’re withdrawing a percentage of your nest egg every month — replacing the reliable paycheck you had during your working years — you definitely don’t want to see your hard-earned assets diminished by market volatility.

The recent bumpiness in the market has many pre-retirees asking: Now what? What should we be doing to best position our investment savings?

Should they stay calm and do nothing? Should they delay their retirement date? Should they move all their money to cash? Should they look at volatility as an opportunity and pour more money into the market?

Dealing with the unknown is scary, but my guess is if you ask your financial adviser, “Now what?” the answer will be along the lines of, “Let’s take a look at your plan.” (And hopefully, your adviser is who you’re asking for such advice right now — not your co-worker, or your brother-in-law or a random group on the internet.)

A properly designed, written income plan is the basis for a confident retirement. If you aren’t sure you have a plan in place, or you do have one but you’re worried about it, here are a few things to look at:

1. Don’t go another day holding onto a junk drawer of indiscriminately accumulated investments.

Have your planner describe for you, in writing, what you own, why you own it, what the products you’ve purchased will do for you and when they’ll do it. Consider whether these instruments are still fulfilling their purpose, and act accordingly to update your portfolio.

2. If you haven’t already, calculate the expenses you expect to have in retirement.

Start with the basic costs of living (housing, food, utilities), but be sure to include things like travel and other activities, medical bills and home and car repairs. This will help you determine how much you’ll need to withdraw from your savings in retirement, and you can make sure you have enough cash and conservative investments to cover that amount for five years or so.

3. Look at rebalancing your portfolio.

Some investments perform better than others, depending on the market, and that means you may have shifted to a riskier mix than you wanted or thought you had. Rebalancing returns your portfolio to your desired asset allocation. (If you aren’t sure what you want your investment ratio to look like, talk to your financial professional about assessing your risk tolerance and performing a risk analysis on your portfolio.)

4. Continue contributing to your retirement accounts.

You don’t have to pour additional dollars into the market during a downturn, but you may benefit if you continue to contribute to your workplace 401(k) (especially if you’re getting an employer match) or a traditional or Roth IRA. If the market is correcting and equities are “on sale,” you could get a boost from those bargains.

5. Keep an open mind to the ideas your financial professional presents.

There are a number of financial instruments within the securities and insurance world that might suit your specific needs in retirement. Make sure you’re working with a fiduciary, who is required to look out for your best interests, and listen to the options he or she introduces. The best way to cope with the ups and downs of the market is to position your assets in a way that provides a sustainable income stream that will last through your entire retirement. If you aren’t there yet with your plans — or if you’re unsure about what you have in place — why not use the market’s current anxiety-inducing fluctuations as motivation to get your financial act together?

Kim Franke-Folstad contributed to this article.