How To Manage Your Investments Through Market Uncertainty
Summary
Even if you’re investing for the long term, short-term market volatility can be difficult to stomach. Whether you have a 457(b) plan, 401(k) plan, 403(b) plan, or an IRA, it’s important to keep emotions in check during market volatility. Selling out of the market when it drops could mean missing out on an opportunity for growth when the market rebounds.
Managing Your Investments Through Market Uncertainty
It doesn’t hurt to use a market downturn as an opportunity to reevaluate your financial goals, strategies, and allocations, and rethink short-term plans. For example, if you’re approaching or already in retirement, it may make sense for you to pull back on unnecessary expenses. If you work for an employer who offers matching 457(b) or 401(k) plan contributions, consider maximizing your contribution to get the full match. (It is free money, after all.) Here are some other considerations for managing your retirement accounts during an uncertain market:
Be Patient
Market swings are normal and expected, so don’t panic when they happen. Historically, stocks overall have outperformed other major asset classes over the long term, and the impact of pulling out of the market could be worse than riding out short-term fluctuations.
Results show that missing just a few days in the market over nearly three decades can significantly reduce performance.1 It’s the time you’ve invested in the market — not timing the market — that matters.
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Diversify Your Portfolio
It’s difficult to predict which investments will do well next. Instead, spread your money over different types of investments to help mitigate some of the risk:
- You can invest long-term savings in stock funds, while maintaining some short-term savings in cash and bond funds.
- You can also invest in stocks and bonds focused on different types of businesses, like large companies, small companies, and international firms.
- You can further diversify your portfolio by choosing some funds focused on fast-growing companies and others for companies that seem undervalued and ready for a rebound.
Low-cost index funds or mutual funds, like the S&P 500 or target-date funds, include different investment types, making it simple for investors to maintain a diverse portfolio.2 Keep in mind: While diversification does not prevent losses, it can help lessen investment risk.
Match Your Investments to Your Time Horizon
If you’re years away from retirement, you may be able to weather more market volatility in return for the potential for larger, long-term returns. You can generally invest more of your money in riskier stock funds when you’re younger and gradually shift more money to bond funds and cash as you move closer to retirement.
Target-date funds are an easy way to help ensure you’re investing based on your intended retirement age. These types of investments include mutual funds based on different time horizons, with more money in stock funds and less in bond funds when you’re early in your career, and gradually shifting to more conservative investments as you get closer to retirement.
Rebalance Regularly
When one type of investment performs better than others, your overall portfolio balance can become riskier than you planned. Review your portfolio regularly and rebalance every year or so, such as the beginning of the year or on your birthday, or whenever your overall stock and bond investments stray more than a predetermined amount from your target mix.
You can rebalance by selling some of the investments that have increased in value and buying more that haven’t performed as well. Or, if you add money to your account with each paycheck, as with a 457(b), 401(k), or 403(b) plan, or an IRA, you can direct more of your new contributions to the asset classes that haven’t performed as well to get your investments back in line with your original allocation over time. Target-date funds also automatically rebalance on a set schedule.
Use Dollar-Cost Averaging
To make dollar-cost averaging simple, automate your savings as much as possible by enrolling in your workplace retirement plan and making regular payroll contributions. You can also sign up for auto-escalation, which increases your contributions by a specified percentage or dollar amount annually.
To make dollar-cost averaging simple, automate your savings as much as possible by enrolling in your employer-sponsored retirement plan and making regular payroll contributions. You can also sign up for auto-escalation, so your contributions increase by a specified percentage or dollar amount annually.
Adjust Your Strategy As You Near Retirement
As you approach your retirement, consider shifting some of your money to more conservative investments that are less subject to market volatility. Some retirees keep at least three to four years' worth of expenses in a stable value fund, which can help mitigate the impact of market volatility on your savings. Still, since you may live for 20 or 30 years in retirement, you'll want to keep a portion of your savings invested more aggressively for the long term.
Disclosures
[b3-regular]1 Past performance is no guarantee of future results. Based on the performance of the S&P 500 stock index from Dec. 31, 2005, through Dec. 31, 2025. Results may vary with use and over time, reflecting any changed circumstances, assumptions, or variables upon which the information is based. [/b3-regular]
[b3-regular]2 A target-date fund is not a complete solution for all your retirement savings needs. An investment in the fund includes the risk of loss, including near, at, or after the target date of the fund. There is no guarantee that the fund will provide adequate income at and through an investor's retirement. Selecting the fund does notrguarantee that you will have adequate savings for retirement.[/b3-regular]
[b3-regular]3 Dollar-cost averaging does not assure profit or protect against loss in a declining market. Since it involves continuous investment, investors must consider their ability to continue to invest during low-price levels.[/b3-regular]