Nearing retirement in a volatile market | American Funds

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Market perspective

Nearing retirement in a volatile market

If you are nearing retirement or are recently retired here are seven ways to deal with uncomfortable — and inevitable — market ups and downs.

1. Consider rebalancing your portfolio

When there are huge fluctuations in the market, chances are your asset allocation will shift since the value of some investments will grow (or shrink) faster than others.

Take a look at this hypothetical asset allocation:

 

If your investment goals and time horizon have not changed, you may want to maintain your original allocations. In the example shown above, that means shifting some of your money from bond, equity-income and balanced funds back to growth and growth-and-income funds. Learn more in our rebalancing FAQs.

Or, if your plan offers them, consider investing in a target date fund, which attempts to balance investors’ needs for both returns and stability. A target date fund can serve as a single, diversified investment, and its allocations are based on your time horizon. Fund holdings are automatically adjusted over time as you near your retirement date.

Talk to your financial professional to see if it’s the right time for you to rebalance or if a target date fund makes sense for you.

2. Don’t take unnecessary risks

Most investors nearing retirement can’t afford to take chances with their money. It is never wise to try to recover your losses by putting even more money in risky investments, especially when that money might be needed for living expenses.

3. Add to your income-producing investments

Now that you’re nearing retirement, is your portfolio too heavily concentrated in stock funds for your comfort level? If so, it may be a good time to increase the percentage of bond funds or other investments designed to provide regular income. Ask your financial professional to review your allocations.

4. Stick with your regular investing program

Since there is no way to know when the market has reached bottom, investing regularly can help you stay in the market without trying to time it. One way to accomplish this is to contribute to your 401(k) or other salary-deferral plan, if your plan allows.

This strategy — called dollar cost averaging — allows you to:

  • Buy more shares when prices are lower
  • Buy fewer shares when prices are higher

Dollar cost averaging can lower your average cost per share, but it does not guarantee a profit or protect against loss, and you should consider your willingness to keep investing when share prices are declining.

5. Focus on the long term

Don’t get caught up in the daily highs and lows of the markets. Even though you are getting closer to retirement, you probably won’t be cashing out your entire portfolio in the first few years. You may hold most of your portfolio for 10 to 30 years.

6. Reduce your debt and expenses

Take charge of another area of your fiscal health: your spending. It’s important to create a budget that you can stick to now in case your income is reduced in the future. If you’re looking for ways to save money, the Federal Citizen Information Center is a good resource.

 

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Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional or downloaded and should be read carefully before investing.