Are You Prepared to Manage Market Volatility in Retirement?

By Bill Taber

Retirement is an exciting achievement, but learning to live on income from sources other than your former job income can require some adjustments. One of the most significant adjustments is dealing with the uncertainty that comes with price volatility in the markets.

Despite unpredictable market swings, it’s possible to build a stable and fulfilling retirement. The key lies in understanding what drives market fluctuations and implementing a strong, carefully crafted investment strategy.

In this article, I walk you through smart, diversified approaches to help you stay on course and confidently navigate the ups and downs of the market.

Understanding Market Volatility

Market volatility is the fluctuation in the price of a security or market index over a given period. Simply put, it measures daily and sometimes significant price changes in financial markets. 

Market price volatility is an inherent characteristic of financial markets. A number of variables, including economic growth, inflation, interest rates, geopolitical events, and investor sentiment, have caused market cycles of ups and downs throughout history.

Although it can cause anxiety, volatility is not always negative. In fact, long-term investors may find opportunities in downward market fluctuations. Retirees can better handle these market fluctuations and work toward their financial objectives by viewing them as the “price” of having some of their investments priced daily in the markets and focusing rather on the underlying fundamentals (e.g., profitability) of those companies or funds. This can de-intensify the emotion of the moment and allow you to continue adhering to a clear investing strategy that fits your time horizon and risk tolerance.

Impact of Market Volatility on Retirement Portfolios

Short-term price volatility in markets can substantially affect retirement portfolios across diverse asset classes. 

For example, while stocks are typically known for their growth potential, they’re inherently more price volatile than bonds. That means stock prices can drop sharply during market downturns, which can have a short-term negative impact on the current market value of a retiree’s retirement account. 

And while bonds that are held to maturity are considered more stable, they’re not immune to price volatility either, particularly when interest rates are rising. Bond prices and returns typically move in opposite directions, so when interest rates climb, existing bond prices usually decrease. 

For retirees, this “sequence of returns risk” is a major obstacle and highlights the negative effect of market downturns on retirement portfolios. If a retiree needs cash from their portfolio when it’s significantly declined in value, they may be forced into selling assets during a temporary market turndown. 

If repeated withdrawals occur during a market turndown, it can impact the ability of the account’s assets to recover to previous levels of market value. This could have a cascading effect on their long-term financial stability.

Strategies for Managing Market Volatility in Retirement

Now let’s look at some strategies for reducing risk to retirement portfolios during market volatility.

First, we believe diversification is crucial. Diversification can include spreading investments over a variety of asset types, such as equities, bonds, real estate, or commodities—thereby reducing the impact of subpar performance in any one asset type. 

One fundamental element of diversification is asset allocation; in other words, setting up the ideal combination of stocks, bonds, and other assets according to a person’s age, risk tolerance, and time horizon. Another is investing with a “margin of safety,” meaning analyzing investment opportunities with an eye toward paying a price for each of your investments that is significantly less than their underlying or intrinsic value (the process of searching for bargains).

Another essential strategy is keeping sufficient cash in checking accounts, savings accounts, or short-term marketable securities. During market downturns, this cash reserve acts as a buffer, allowing retirees to pay for living expenses without having to liquidate investments at potentially lower prices. 

Maintaining a Long-Term Perspective

Retirement savings can be severely impacted by emotional decision-making, such as panic selling during market downturns. This means it’s critical to focus on long-term investment goals rather than responding to short-term market swings.

History has shown us that markets typically rebound from downturns. The long-term trend has been upward, even though recoveries vary in timing and length. By remaining invested and refraining from impulsive decisions, retirees can gain from the potential of long-term prosperity and can weather the price volatility in markets. 

Work With a Trusted Advisor

Is your retirement portfolio ready for market ups and downs? 

At TABER Asset Management, we help retirees and pre-retirees design resilient investment strategies that can weather market volatility. Our experienced financial advisors provide customized proactive, adaptive support, continually reviewing and adjusting your plan to align with both market shifts and your evolving needs.

Whether you’re already retired, approaching retirement, or laying the foundation now, having a solid financial strategy is essential. Let’s work together to create a plan designed to endure whatever comes.

Get started today by scheduling a 15-minute intro phone call online or reaching out to us at 515-557-1860 or invest@taberasset.com.

About Bill

Bill Taber is President and Founder of TABER Asset Management, an independent, fiduciary wealth management firm, in Des Moines, Iowa, that strives to do one thing well: manage their clients’ money by creating wealth, building wealth, growing income, and preserving capital so they can experience financial freedom. With more than four decades of experience, Bill is dedicated to building relationships with his clients and their families and walking alongside them as they navigate financial decisions. His favorite days are the ones when he gets to witness the joy and relief on his clients’ faces when they realize they can pursue their dreams and live their ideal lifestyles. Bill is known for going the extra mile, getting things done with integrity, and working with a stewardship mentality.

Bill graduated from the University of Iowa with a bachelor’s degree in business administration and fell in love with the profession when he got to help one of his first clients—his father—turn his lifetime of hard work into a dream retirement. He got his start in the industry as a corporate services representative for Bankers Trust Company and spent decades working as Assistant Vice President of E.F. Hutton & Co. and First Vice President of Principal Financial Securities. He is also a graduate of the E-Myth Worldwide Mastery Business Development Program and is Series 65 registered. 

In his spare time, Bill enjoys giving back to his community and spending time with his family. His hobbies include traveling, gardening, reading, and practicing yoga, Pilates, and meditation. He also loves the simple joys of listening to music, going for walks or bike rides, and being in nature. To learn more about Bill, connect with him on LinkedIn.