Tips to Help Prepare Your Retirement Savings for Market Volatility

Summary: They say, “the best way to make money is not to lose it.” Safeguarding your retirement savings from market volatility involves adopting proactive strategies and seeking professional financial advice to help ensure fewer losses, stability and confidence in uncertain times.

Watching markets swing wildly can be incredibly stressful, especially when your retirement savings are at stake. One question on all your minds may well be: How to protect my 401(k) from a market crash?

Feeling anxious about your financial future is only normal. The good news is that with the right strategies, you can fortify your savings to minimize these ups and downs.

In this article, we’ll explore seven practical tips to help you safeguard your retirement savings against market volatility.

1. Understand your risk tolerance

Preparing your retirement savings for market volatility starts with knowing how much risk you’re comfortable with. This isn’t about a panicked reaction to market drops but about aligning your investments with your financial goals and timeline.

Assess your risk appetite

Consider your age, retirement plans, and financial commitments. Consider the use of tools like risk assessment questionnaires or consult with a financial professional who can help you evaluate your risk profile. This helps you understand how much market fluctuation you can handle.

Adjust investment strategy accordingly

Adjust your portfolio based on your risk tolerance. If you’re more conservative with your finances, it might be safer to shift towards safer investments like bonds or money market funds. If you can handle more risk, consider sticking with growth-oriented assets. Regularly review your risk tolerance to ensure your strategy remains aligned with your needs, especially after any major life changes.

2. Diversify your investments

Arguably, the most effective way to prepare your retirement savings for market volatility is through diversification. By spreading your investments across various asset classes and geographical regions, you can reduce risk and increase the potential for steady returns. Staying ahead of the curve by innovating and not relying on past performances of assets is also key.

Strategic asset allocation

Asset allocation and knowing your risk appetite are the foundation of your investment strategy.

Start by diversifying your portfolio across stocks, bonds, real estate, and commodities. This spreads risk, as different assets may perform well when others underperform. For example, bonds often hold value better than stocks during economic downturns.

However, no investment is without risk. An asset allocation methodology does not guarantee greater returns or against the risk of loss in a declining market. Stocks can be volatile, bonds face interest rate risks, real estate can have liquidity issues and commodities can be influenced by weather or geopolitical events.

Diversification doesn’t eliminate risk; it merely manages it by not putting all your eggs in one basket.

Global diversification

Consider the opportunity to expand beyond the US markets to seek the best investments for your retirement. International stocks and bonds can be a form of diversification. Markets abroad run on their own unique economic cycles, balancing domestic downturns. So for instance, if the US market dips, emerging markets might still thrive.

But be cautious — international investing can bring risks like currency fluctuations, political instability and varying economic conditions. Stay informed and ready for increased volatility and uncertainties.

It may be prudent to use an advisory firm or a trusted financial professional to access these markets. They can help with risk assessment, informed decision-making and management of your assets.

Explore alternative investments

Look into alternative investments like real estate investment trusts (REITs), commodities, or even peer-to-peer lending. These non-traditional assets often behave differently from the stock market, potentially providing another layer of protection against volatility. However, be aware that REITs come with their own risks, such as lower liquidity and higher fees, so ensure they align with your overall risk tolerance and financial goals.

3. Establish a cash reserve

Building a cash reserve can be a helpful way to protect your retirement savings during market volatility. This reserve acts as a buffer, allowing you to help cover expenses without having to sell investments at a loss during market downturns.

The role of cash in volatile markets

Having cash on hand provides some stability when markets fluctuate. It allows you to maintain your lifestyle and financial obligations without relying solely on selling investments that may have depreciated in value. A cash reserve also provides flexibility to take advantage of buying opportunities when markets are down.

How much to keep in cash

Financial experts recommend keeping a cash reserve that covers three to six months of living expenses. Additionally, consider setting aside extra cash to cover anticipated large expenses or potential market downturns. The exact amount will depend on your individual financial situation and risk tolerance.

Implementing a cash reserve strategy

Regularly contribute to your cash reserve and review it annually to ensure it meets your current needs. High-yield savings accounts and short-term CDs allow for better returns while maintaining liquidity, making them suitable options for your cash reserve. Adjust the size of your cash reserve as your financial situation changes, such as nearing retirement or experiencing income fluctuations.

4. Regularly rebalance your portfolio

To effectively manage investment risks and optimize returns, regular portfolio rebalancing is essential. This proactive strategy helps ensure that your asset allocation remains aligned with your risk tolerance and financial goals, especially during periods of market volatility.

Why rebalancing is crucial

Market fluctuations can cause your asset allocation to drift from its original targets. Rebalancing involves selling overweighted asset classes that have grown beyond their target percentages and reallocating funds to underweighted asset classes. This disciplined approach helps you maintain a diversified portfolio that reflects your risk tolerance.

How to rebalance effectively

Set a schedule, such as annually or semi-annually, to review your portfolio’s performance and adjust accordingly. Consider using automatic rebalancing tools offered by many investment platforms to simplify the process. Examples include:

• Portfolio management tools: There are multiple platforms in the market that provide portfolio tracking and rebalancing features.
• Online brokerage tools: Brokerage firms offer tools that allow you to set target asset allocations and automatically rebalance your portfolio.

During rebalancing, assess your investment goals and risk tolerance to ensure your portfolio remains aligned with your long-term strategy. Consulting with a financial professional can help you understand the intricacies of weighted investments and develop a tailored rebalancing plan.

By regularly rebalancing, you can potentially increase returns by selling high-performing assets and buying underperforming ones at lower prices. This strategy not only reduces overall portfolio risk but also enhances long-term performance potential. Additionally, it instills discipline and prevents emotional decision-making during turbulent market conditions.

5. Utilize defensive assets

When safeguarding your retirement savings against market volatility, incorporating a defensive investment strategy can provide stability and preserve capital during turbulent times.

Types of “defensive” assets

When safeguarding your retirement savings against market volatility, incorporating defensive or “safe” assets into your investment strategy can provide stability and preserve capital during turbulent times

Defensive assets are typically known for their ability to retain or increase in value when other investments decline. Consider:

• Gold: Historically, gold has been a hedge against inflation and economic uncertainty.
• Treasury bonds: US Treasury securities are considered low-risk and can provide steady income and capital preservation.
• Cash equivalents: High-quality, short-term investments such as money market funds or no-penalty certificates of deposit (CDs) provide liquidity and stability.

Allocate a portion of your retirement money to defensive assets based on your risk tolerance and investment goals. During market downturns, these assets can act as a cushion, potentially offsetting losses in more volatile investments like stocks.

Consult with a financial professional to determine the appropriate allocation of defensive assets based on your retirement timeline and risk tolerance. Regularly review and adjust your portfolio to ensure it remains aligned with your financial objectives and market conditions.

6. Consider professional financial advice

Navigating market volatility and effectively managing your retirement savings requires expertise and experience. Seeking guidance from a qualified financial professional can provide invaluable insights and strategies tailored to your specific financial situation.

Financial advisors offer:

• Market expertise: They understand financial markets and economic trends, providing informed guidance.
• Customized strategies: Advisors create personalized plans aligned with your risk tolerance and retirement goals.
• Risk management: They help diversify your portfolio and make informed decisions during market fluctuations.
• Emotional discipline: Advisors provide objective advice, helping you avoid emotional decisions that can impact your finances negatively.

When choosing a financial professional, consider their credentials, experience, and fee structure. Regular consultations and reviews can help ensure your strategy remains aligned with your financial objectives and market conditions.

Choosing a more secure future

Investing should be a bit like “watching paint dry;” you can reap most benefits when it’s steady rather than exciting. Your retirement planning must be proactive, resilient, risk-aware, and disciplined in order to succeed.

With the right strategies in place — such as diversifying your investments, maintaining a cash reserve, and seeking professional advice — you can better weather unpredictable economic conditions. Mutual of Omaha is here to support you with tailored financial solutions, ensuring you can face the future with confidence and security.

Disclosures:

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc.

Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice.

Not all Mutual of Omaha agents are registered representatives or financial advisors. All investing involves risk, including the possible loss of principal and there can be no assurance that any investment strategy will be successful.

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