Surviving Market Volatility During COVID-19: Retirement Planning Tips

July 28, 2020

During this time, it may be somewhat comforting to remember you're not alone. Everyone is wondering what the immediate future holds for the impact of the COVID-19 virus. Everyone else has the same fears and anxiety that you're feeling right now. When it comes to investing in your retirement plan, all you can really control is how you react. Sticking to sound, fundamental investing principles and staying the course will help you make it through this difficult time. Here are some practical tips for surviving market volatility (the rise and fall of the market) in the face of what may seem like an extraordinary crisis right now.

Avoid hitting the panic button
During this time, it’s very tempting (and very normal) to think about getting out of the stock market. Especially on March 16, when the S&P 500 suffered its worst decline since the 1987 stock market crash (also known as Black Monday). But selling solely because the stock market has suffered a big decline over a very short period of time may be the worst thing you can do.

It’s understandable if you’re struggling to keep fear in perspective right now. Over time, however, the stock market has historically risen despite significant economic challenges, terrorism, the burst of the housing bubble in 2008 and countless other calamities. Investors should try to always separate their emotions from the investment decision-making process. What seems like a massive global catastrophe one day may likely become a distant memory a few years down the road. After all, when was the last time you thought about Black Monday (if you are even old enough to remember it)? Or the Great Recession?

Keep a long-term perspective
For many people, a retirement account is their largest investment asset. And that’s probably the asset you're most concerned about right now. Keep in mind that if you're investing for a long-term goal such as retirement, which may not begin for two or three decades — and could last two or three decades — you have plenty of time to ride out this current market downturn.

Maintain a diversified portfolio
Having a percentage of your portfolio spread among stocks, bonds, and cash assets is the core principle of diversification. Doing so helps manage your risk because historically not all parts of the market move in the same direction at the same time. Losses in one asset category (such as stocks) may be mitigated by gains in another (such as bonds and cash)1.

Consider this a great buying opportunity
Experienced investors often view bear markets as great buying opportunities because the valuations of good companies get hammered down due to circumstances beyond their control — such as what's happening now with the airlines, hotels, oil companies and many other industries and sectors. If you can afford to, it’s important to keep contributing to your retirement account on a regular and consistent basis.

Keep on dollar cost averaging
The principle of dollar cost averaging means you simply commit to investing the same dollar amount on a regular basis (like you are already doing with your retirement plan). When the price of shares in a stock or investment portfolio drops (like it is now) — you’re actually buying more shares. Conversely, when the price goes up, you’ll be buying fewer shares. Over the long term, this provides you with an opportunity to lower your average cost per share2.

Be real about your tolerance for risk
When you started saving for retirement, you may have taken a quiz to help gauge your comfort level with risk and chose investments accordingly. Whatever you did, you probably never thought it would be tested like it is right now. If you're literally not able to sleep at night right now due to all the market volatility, that’s probably the most reliable sign that you may need to consider a larger allocation to more conservative investments. However, make sure you consider the next and final tip before you do anything!

Think, reflect, sleep on it….and consider talking to a financial professional
If you make changes to your retirement plan investments, do so in a thoughtful way and after careful consideration. Talk to friends and family (remember, they’re in the same situation as you). Read and digest articles from a trusted financial news source. And if you haven’t already, consider talking to your plan advisor to get their perspective and guidance.

1There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
2 Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.
This material was prepared by LPL Financial, LLC.