Riding Out Volatile Markets

What should I review when markets become volatile?

Start with when you’ll need the money, your investment mix and how a decline could affect your plans. If you’re withdrawing from the account, consider how losses and withdrawals interact. A qualified professional can help you evaluate your circumstances before you make a significant change. 

What to Review Before Changing Your Retirement Investments

Riding out volatile markets is easier to understand when you know how a decline fits into your retirement plan. A falling account balance can raise an immediate question about whether to change investments. Before answering, review when you need the money, how much risk you hold and whether the reason for owning those investments has changed. A market headline cannot answer those questions for your household.

Someone saving for a retirement decades away has a different problem from someone using the account for next month’s bills. The first person may still be adding money through payroll contributions. The second needs to consider how withdrawals interact with losses and which expenses can be adjusted. A useful response accounts for those differences instead of treating every investor the same way.

Preparation helps you make that review before emotions take over. Understanding a possible loss in dollars, checking your investment mix and identifying a source of guidance can make the next decision more deliberate. This article explains what to examine during a downturn and what to plan in advance, without assuming you should make the same investment change as someone else.

Riding out volatile markets starts with your timeline

Identify the money you expect to need soon and the savings intended for later years. A long horizon can provide more opportunity to recover from losses, but it does not guarantee recovery by a particular date. If retirement is approaching, review whether a decline would force you to change your starting date or income plan. Those are different questions from whether the market will rise next week.

Risk tolerance is your willingness to accept investment losses, while your financial ability to absorb them depends on the rest of your situation. Both matter. The SEC’s asset allocation guidance explains why the investment mix should reflect your time horizon and risk tolerance. A portfolio can be diversified and still expose you to more loss than you are prepared to handle.

Translate a decline into dollars

Multiply your balance by a hypothetical percentage decline to see the loss in dollars. Then consider what would remain available for the expenses the account needs to support. Those numbers can make risk more concrete than a label such as moderate or aggressive. Ask how a loss of that size would affect both your spending and your ability to stay with the plan.

If a decline makes you want to make a major change immediately, consider talking with a trusted, appropriately qualified professional before you act. That gives you a chance to revisit the plan and understand the consequences of the change.

Avoid judging the decision only by how uncomfortable the statement feels today. Check whether your goals, income needs or ability to take risk have changed. If the investment mix was inappropriate before the decline, a review may be needed. That review should consider a workable long-term allocation rather than an attempt to guess the exact market bottom.

Understand why withdrawals change the picture

When you take money out after a loss, you leave less invested to participate in a recovery. This is part of sequence-of-returns risk: the timing of returns matters when money is moving out of the portfolio. Early losses during retirement can create a different result from similar losses later. Schwab’s explanation describes why withdrawal planning and investment returns need to be evaluated together.

For a simple hypothetical illustration, a $100,000 account that loses 20% falls to $80,000. A subsequent $4,000 withdrawal leaves $76,000, ignoring fees and taxes. The same $4,000 represents 5% of the post-decline $80,000 balance, compared with 4% of the original $100,000. The example illustrates the mechanism; it does not recommend a withdrawal rate or predict an outcome.

Know what it takes to recover a loss

Percentages can be misleading when the starting balance changes. A $100,000 account that falls 20% is worth $80,000. A 20% gain on the smaller balance would add $16,000, bringing it to $96,000. It would take a 25% gain from $80,000 to return to $100,000, before contributions, withdrawals, fees and taxes.

That example is arithmetic, not a prediction about a particular fund or the time a recovery may take. Markets can decline further, move sideways or rise. It does show why the size of a loss matters and why a portfolio should fit both the time you have and your ability to absorb a decline.

A review can lead to a deliberate change

Staying with a plan through a downturn does not mean refusing to review it. You might discover that an old allocation no longer reflects your retirement date, or that a large holding has made the account more concentrated than you realized. A change made for those reasons serves a different purpose from selling solely because you expect to buy back at the perfect time.

Look at the whole mix, including accounts outside your workplace plan if relevant. A target-date fund may already hold stocks and bonds, so adding other funds changes the combined allocation. If your holdings have drifted from an allocation you chose, rebalancing may bring them closer to that target. Check plan rules, fees and any tax implications before making a change, and remember that diversification cannot prevent losses.

Write down the reason for the decision and when you will review it again. If you need help interpreting the plan’s options, ask the recordkeeper or the educational resource your employer identifies. For a recommendation specific to your finances, confirm that the professional is able to provide individualized advice.

Review contributions and withdrawals separately

If you are still saving, determine whether your contribution plan remains affordable and appropriate. Regular contributions can purchase more shares when prices are lower, but continuing to buy does not ensure a profit. Do not increase contributions solely because prices fell if doing so would leave essential bills uncovered. Consider cash flow and the investment’s role before acting.

If you are already retired, identify which spending is essential and what flexibility exists in withdrawals. Review available cash, other income and the timing of larger expenses with your financial professional. Moving everything to cash or keeping everything unchanged are both decisions with consequences. Your circumstances should guide the assessment, and no allocation removes every risk.

Prepare your review before the next decline

Keep a short record of the role each investment plays and the reason for your overall allocation. Add the name of the person or service you would contact before making a major change. Review that plan as retirement gets closer or household needs change. Preparation cannot stop a downturn, but it can give your decisions a clearer starting point.

McClone’s retirement plan education can help employees understand their benefits and resources. For an individual investment decision, confirm what guidance your plan offers and whether you need personalized advice from an appropriately qualified professional. Start by reviewing your timeline and the dollar impact of a loss before changing the account.

Securities offered through LPL Financial, a Registered Broker Dealer, Member FINRA/SIPC. Investment advice offered through Gateway Wealth Partners, LLC, a registered investment advisor. Gateway Wealth Partners, LLC, McClone Retirement Advisors and LPL Financial are separate entities. TAX AND LEGAL DISCLAIMER: McClone and its affiliates do not provide tax, legal or accounting advice. Any material prepared is for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and/or accounting advisors before engaging in any transactions.