Manage market instability without losing sleep (or putting off retirement)

Saving for retirement is a little like sailing: when the sun is out and the sea calm, everything seems great, but when the wind comes up and the sea’s volatile, it becomes downright frightening.

And there have been some volatile markets recently, which may have made you feel like opting out entirely and jumping overboard. But, as with sailing, so with investing—you’re better off in the boat. 

Because, while you may not see it right now, the markets will recover. And if you’re not in it for the recovery, you’ll miss some of the best investing days. We saw it with COVID, the subprime mortgage crisis, and we’ll see it with whatever you’re going through now (whether that’s today’s tariffs or tomorrow’s scare).

Of course, that’s easy advice to give when you’re talking about other people’s money and you’re not losing sleep over whether you’re going to be able to retire on time.

But if you’re out there in that boat, with dark skies above you, the wind coming up, and waves rocking your boat, you need more than trite advice. So, we’re going to go through all the things we’ve learned over the years, helping people build rock-solid retirement plans in the midst of various market upheavals.

So, of course, we’re going to start with the big one.

Don’t panic

In the last year, many people have lost a significant chunk of their life savings almost overnight. To them, that loss was more than just math and numbers. It looked like the end.

Of course, if they were to sell everything and realize those losses, it would get them a lot closer to that end they’re worried about.

But they didn’t. So all those losses, right now, they’re just numbers on a screen. And when the market inevitably recovers, they’ll just be a memory.

Now that we know that all those losses don’t mean anything until you sell, let’s move on to the next thing you can do to survive this turmoil with your savings and sanity intact.

Keep investing (and buy the dip if it works for you)

We just talked about not panicking and selling. Now we’re going to take it a step further. Not only is it good to keep investing, it’s often even better to double down and buy those investments when they’re on sale.

Because those investments aren’t going to stay as cheap as they are now. Whether COVID or Black Monday, the market has always recovered. And that makes this a chance (for those who have the risk tolerance and extra cash) to really boost your retirement savings.

Stop looking at your investments

Your portfolio during a market crash is a lot like a car accident on the highway—you just can’t look away. But the truth is, checking on your investments every day is not going to make the market go back up. It’s just going to make you feel nervous. It might even start stocking that panic once again, and that doesn’t do anyone any good.

So though it may feel irresponsible to just look away, chances are it’s the best choice you can make.

Trust the plan (and diversification)

You (and your financial planner) have made a plan. You studied the market, diversified your portfolio, and generally made decisions based on your goals. And this temporary turmoil was not unforeseen. Big losses have happened before, and they’ll happen again. They’re not outside the plan—they’re a part of the plan.

So trust the plan, because it’s worked through all those previous recessions and market dips.

Consider the tax implications before selling assets

For most people most of the time, the best move is to stick with the plan and keep moving forward. But that won’t work for everyone. So, while some may be ready to batten down the hatches and ride out the storm, others may need to restructure their investments or even sell. 

But before you do, you should consider all the tax implications selling will have. This will give you a better idea of which of your investments cost less to sell, and set you up to take the lowest loss possible.

Take enough action to allow you to sleep

When we’re talking about money, it’s about more than math. It’s your well-being. Many people get so worried during downturns that they can’t sleep or concentrate. And that kind of stress can lead to all kinds of bad decisions.

So, if you feel the need to do something, keep the changes minimal, only changing what you have to, so you can sleep better at night. 

And remember: Only time will help them recover.

If you’re retired, you should…

Not everyone has the luxury of allowing time to heal these financial wounds. There are plenty of people out there who plan to retire this year, or who have already retired and are watching this year’s spending whither on the vine.

For those, we recommend you:

Review your budget

Locking down spending isn’t the easiest solution, but it’s always effective. There is little doubt that the market will recover, and you want to keep your investments in the market until that process is finished. So though it may hurt to push off a big purchase or vacation, it will pay off in the long term.

Make use of cash

If you do have a cash buffer, now’s the time to start pulling from it, instead of your investments. And, if it’s a big enough buffer, you might even consider buying the dip to make next year just a little sweeter.

Decide which investments are best to liquidate

If you’re diversified, some of your investments are doing better than others. If you must cash out to make ends meet, prioritize pulling money from the better-performing investments. This way, those investments which took the greatest hit will also have the longest amount of time to recover.

Don’t change your plan without a sober second opinion

Many people right now are worrying that they will need to push back retirement, or even re-enter the workforce after the hit the markets took. However, much of your investments are going to stay invested long after this downturn is in the rear-view mirror. That means, even if you’re close to retirement or are already retired, you’re still probably going to experience much of the recovery.