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7 Tips to Manage Volatile Markets as You Transition to Retirement

By Mark Farrelly, CFP®, CDFA®

Market volatility can be sparked by triggers ranging from policy uncertainty in Washington, to earnings reports, to geopolitical unrest. Dramatic moves in the stock market may cause you to question your strategy and worry about your money. A natural reaction to that fear might be to reduce or eliminate exposure to stocks, thinking it will stem further losses and calm your fears. However, such a move may not make sense in the long run, even if you’re approaching retirement.

Rather than worrying about volatility, be prepared. A well-defined investing plan tailored to your goals and financial situation can help you feel ready for the normal ups and downs of the market and to take advantage of opportunities as they arise.

Here are some ways to be prepared for market volatility as you transition to retirement.

1. Make sure to have three years of cash reserves.

Maintain three years of portfolio withdrawals in cash reserves during retirement. For example, if your expenses in retirement are expected to total $60,000 per year and half of that amount ($30,000) will come from Social Security, keep $90,000 in reserves ($30,000 withdrawal x 3).

By maintaining three years of “safe money,” you will have a plan to get through a major market downturn without needing to sell, giving your investments time to recover.

2. Limit the percentage you withdraw from your portfolio in retirement.

Retirement can last 30 years or more, which means your money also needs to last that long. Setting a cap on the amount you withdraw annually from your portfolio helps to avoid drawing down principal while allowing your investments to grow over time. If you are withdrawing at too fast a rate, you may need to adjust your retirement plans by working longer or reducing expenses.

3. Avoid large sustained losses during market declines and recover timely when losses do occur.

Proper diversification and rebalancing can help manage volatility. To help avoid large declines, reduce your exposure to the stock market or other volatile asset classes.

4. Be comfortable with your investments.

If you are nervous when the market goes down, the risk level in your portfolio may not be an appropriate fit for you. Your time horizon, goals, and tolerance for risk are key factors in helping to ensure that you have an investing strategy that works for you.

Even if your time horizon is long enough to warrant an aggressive portfolio, you have to be comfortable with the short-term ups and downs you’ll encounter. If watching your balances fluctuate is too nerve-racking for you, think about re-evaluating your investment mix to find one that feels right.

But you should also be wary of being too conservative, especially if you have a long-term horizon, because conservative strategies may not provide the growth potential you need to achieve your goals. Set realistic expectations. Doing so will make it easier to stick with your long-term investing strategy.

Choose the amount of stocks you are comfortable with

Data source: Ibbotson Associates, 2018 (1926-2017). Past performance is no guarantee of future results. Returns include the reinvestment of dividends and other earnings. This chart is for illustrative purposes only and does not represent actual or implied performance of any investment option. See footnote 1 for detailed information.

5. Keep a long-term perspective. Downturns are normal and typically short lived.

Uncertainty is a constant, and downturns happen frequently. But market setbacks have typically been followed by recoveries.

Market downturns may be upsetting, but history shows that the U.S. stock market has been able to recover from declines and can still provide investors with positive long-term returns. In fact, during the past 35 years, the market has experienced an average drop of 14% from high to low during each calendar year but still had a positive annual return in more than 80% of the calendar years in this period.

It has paid to stay invested in US stocks during troubled times

US stock market returns represented by total return of S&P 500® Index. Past performance is no guarantee of future results. It is not possible to invest in an index. First 3 dates determined by best 5-year market return subsequent to the month shown. Sources: Ibbotson, Factset,

6. Stay disciplined. Avoid market timing.

Trying to time the market has proven challenging—and could cost you. It would be great if you could avoid the bad days and invest during the good ones. The problem is, it is impossible to consistently predict when those good and bad days will happen. And if you miss even a few of the best days, it can have a lingering effect on your portfolio.

7. Take advantage of opportunities.

If you have investments you are looking to sell, a downturn may provide the opportunity for tax-loss harvesting, or when you sell an investment and realize a loss. That could help your tax planning. Finally, if the movement of the markets has changed your mix of large-cap, small-cap, foreign, and domestic stocks, or your mix of stocks, bonds, and cash, rebalance to get back to your target asset mix. That could provide a disciplined approach that helps you take advantage of lower prices.

The Bottom Line

Rather than focusing on the turbulence, wondering whether you need to do something now or wondering what the market will do tomorrow, it makes more sense to focus on developing and maintaining a sound financial and investing plan. A good plan can help you ride out the peaks and valleys of the market and may help you achieve your financial goals.

Schedule a complimentary meeting with a wealth advisor to discuss your personal situation.

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1. Data Source: Ibbotson Associates. Stocks are represented by the Standard & Poor’s 500 Index (S&P 500®Index). The S&P 500®Index is a market capitalization–weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent US equity performance. Bonds are represented by the Bloomberg Barclays US Intermediate Government Bond Index, which is an unmanaged index that includes the reinvestment of interest income. Short-term instruments are represented by US Treasury bills, which are backed by the full faith and credit of the US government. Indexes are unmanaged, and you cannot invest directly in an index. Foreign stocks are represented by the Morgan Stanley Capital International Europe, Australasia, Far East Index for the period from 1970 to the last calendar year. Foreign stocks prior to 1970 are represented by the S&P 500® Index. The purpose of the target asset mixes is to show how target asset mixes may be created with different risk and return characteristics to help meet an investor’s goals. You should choose your own investments based on your particular objectives and situation. Be sure to review your decisions periodically to make sure they are still consistent with your goals.

Newfocus Financial Group, LLC does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk.

Past performance is no guarantee of future results.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

Foreign markets can be more volatile than U.S. markets due to increased risks of adverse issuer, political, market, or economic developments, all of which are magnified in emerging markets. These risks are particularly significant for investments that focus on a single country or region.

In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible. 

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This blog is provided by NewFocus Financial Group, LLC (“NewFocus” or the “Firm”) for informational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. No portion of this blog is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Certain information contained in this presentation is derived from sources that NewFocus believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages.

NewFocus is an SEC registered investment adviser owned by Chad Burton and Robert Black which maintains a principal place of business in the State of Washington. The Firm may only transact business in those states in which it is notice filed or qualifies for a corresponding exemption from such requirements. For information about NewFocus' registration status and business operations, please consult the Firm's Form ADV disclosure documents, the most recent versions of which are available on the SEC's Investment Adviser Public Disclosure website at

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