When world or domestic events — like conflicts or political instability — make headlines, it’s natural to wonder what they mean for your retirement savings. Investors often react quickly, which can lead to dips in the market — and even in your retirement account balance. The good news: history shows these dips are usually short-lived, and your long-term investing plan can be designed to weather them.
How markets typically respond
Current events can cause quick market reactions, but those moves often follow familiar patterns. Here’s what history shows about how markets tend to behave when uncertainty rises:
- News headlines can potentially boost volatility. Markets often react more to the fear of what might happen than to actual events. That uncertainty can lead to big price swings.
- Quick drops and rebounds. Stock prices may fall a few percent. Historically, though, those losses are recovered within weeks.
- Flight to “safety.” Some investors might move money into investments they see as safer, like government bonds. This can cause short-term price changes in the market.
- Different sectors, different results. Depending on the situation, some areas of the market may rise while others may fall more sharply. For example, in some cases, defense or energy companies may see their stocks rise while investments tied to fast-growing economies outside the U.S. may decline.
The important thing to remember is that market changes are normal and temporary. Over time, markets have tended to grow despite short-term turbulence.
What should retirement savers do?
Here are practical steps to keep your plan on track:
- Limit the noise. Constant news updates can fuel anxiety. Check your retirement plan and other financial accounts periodically but avoid making decisions based on headlines.
- Stick with your long-term strategy. Staying invested is one of the most powerful ways to grow your savings. Selling during a dip often means locking in losses and missing the rebound. Case in point: The average investor underperforms the market by 1.2% per year due to trying to time the market and other factors – losing out on about 15% of total returns.1
- Use My Income & Retirement Planner. Log in to access the tool and check your Chance of Success score for reaching your retirement goals. This score factors in market dips and can help put panic at bay.
- Continue contributions. By consistently contributing to your retirement plan, you average out your investment costs over time. Contributing during a downturn also means buying shares at lower prices, so you can potentially gain more in an upswing.
- Review your investment mix. Make sure your assets are divided among categories like stocks and bonds in a way that matches your goals, risk comfort and time until retirement. If it isn’t, you may want to rebalance your portfolio (shift funds to achieve your target mix) to bring it back in line with your long-term goals. Before deciding to make changes, talk with us or your financial professional.
- Build a buffer. If you’re nearing retirement, keep enough savings in liquid accounts that can easily be converted to cash to cover short-term expenses. That way, you won’t have to sell investments during a downturn when prices are lower.
News events can affect the markets but they don’t have to shake your confidence. By focusing on what you can control, using the tools available and sticking to your long-term plan, you’ll be better prepared to ride out volatility and keep your retirement goals on track.