Control Your FreakSubmitted by Moneywatch Advisors on May 3rd, 2022
The Serenity Prayer contains the following phrase: “God, grant me the serenity to accept the things I cannot change, courage to change the things I can, and wisdom to know the difference.” Not only good life advice but outstanding investing advice, particularly during a declining stock market as the first four months of 2022 have been. While one certainly can’t control the stock market, here are some things you CAN control when investment markets are volatile:
- Don’t panic and sell! This advice goes for anyone but particularly those who might be feeling vulnerable as they approach retirement or are already retired. During the stock market collapse in 2008 there were abundant stories about people who panicked as they saw their life savings decline and reacted by selling what they owned in an effort to stop the decline. The problem with this strategy, however, is by selling they locked in those losses. The move also guaranteed they wouldn’t experience the inevitable climb back when the stock market began to rise again. Picture the stock market as a yo-yo on an escalator – it rises and falls regularly, but still reaches the next level eventually.
- Years away from retirement? Consider saving more now. Saving more while younger not only gives your investments more time to earn and compound, but saving more while the stock market is down gives you an opportunity to “buy while things are on sale.” Think about it – if you contribute each pay period to your workplace retirement plan, your regular contribution will purchase more shares of that mutual fund when prices have declined. Who doesn’t like a good sale?
- Approaching or in retirement? Focus on these items:
- Reduce some investment risk by creating cash for your needs over the next 6-12 months. We often create cash in clients’ accounts when we know they’ll be taking withdrawals from those accounts over that time period. If the cash is already there for your spending needs, a decline in the stock market is less worrisome;
- Try to limit your withdrawal rates to 4-5% of your overall portfolio value annually, if possible. We usually project average annual returns for investments during retirement of about 5%. If you withdraw about that same amount, over time your portfolio should retain its value. Withdrawing consistently more, however, can drain your accounts prematurely;
- Carefully consider when you start taking Social Security benefits. Consider not only the estimated total benefits you might realize but also how the timing of those benefits may affect the withdrawal rates from your retirement accounts. We help clients with these projections frequently, of course. Just be prepared to tell us exactly how long you plan to live – that data is quite helpful.
A volatile stock market can be unsettling, partly because we know we can’t control it. But having the wisdom to know what we can control can benefit us financially and hopefully also emotionally.
Steve Byars, CFP®