The word “volatility” is being used excessively nowadays in discussions about financial markets and the economy. “Volatility” is commonly used to describe downward trends in a market. However, that is not what volatility means! “Volatility” describes erratic price changes in stock markets or other markets over short periods of time.
Differentiating Down Trends and Volatility
Your financial strategy should be safeguarded against downward trends. It may seem as if there is little danger involved in holding risky assets in your retirement portfolio when markets are improving. If you are not careful about how your risk tolerance is reflected in your investments, your risky assets might increase during smooth economic periods and become a large proportion of your portfolio. When the markets finally turn, your accounts may decline in value more steeply.
True volatility, on the other hand, is something else. For example, the markets may rise one week and fall the next, making you feel like you need to alter your investment strategy accordingly. If you’re constantly rebalancing because of news headlines and their effect on your emotions, you might end up incurring higher fees or selling at the wrong times as a result. This is a poor strategy, let alone a strategy at all.
A Comprehensive Goal with a Plan Makes All the Difference
Riding the markets by the seat of your pants is not a portfolio strategy that can consistently provide what you need in retirement. Instead, it’s crucial to ask yourself the following questions:
- Assess your retirement finances now.
- How much do you have saved?
- How much do you plan to have saved in retirement?
- Assess your costs.
- How much do your basic needs cost?
- How much do you think they will cost in the future?
- Assess how much income you will need to cover your basic costs.
- Based on your costs, how much will you need now and, in the future, to comfortably cover them?
- Assess your risk tolerance.
- How much will go towards providing you a stable income that covers your costs in retirement?
- Based on that number, how much are you willing to put towards riskier, higher-growth assets?
- If you’re not retired, how much more do you need to meet your retirement goals?
This set of questions only scratches the surface of how you can thrive through retirement without worrying about everyday market swings. Healthcare costs, tax strategy, multiple sources of income, where you live, what assets you currently have and how liquid they are, and many other factors, all influence how your ideal retirement plan can be sculpted. But that’s easier said than done. Talk to us today to take the first step in helping you get your retirement plan on track.
Securities and advisory services offered through Royal Alliance Associates, Inc. (RAA), member FINRA/ SIPC. RAA is separately owned and other entities and/or marketing names, products or services referenced here are independent of RAA. RAA is not affiliated with Lone Beacon
Neither the named representative nor the named Broker/Dealer or Investment Advisor gives tax or legal advice.
Fixed index annuities are designed to meet long-term needs for retirement income. Early withdrawals may result in loss of principal and credited interest due to surrender charges. Distributions may be subject to ordinary income tax and, if taken prior to age 59 ½, an additional 10% federal tax. An income rider or benefit (sometimes called Guaranteed Lifetime Withdrawal Benefits, or GLWB) is an additional feature available with some annuities and generally optional and come with additional cost. Income benefits are designed to provide income options above and beyond the standard annuitization or free withdrawal features in annuities. All contract gains beyond the CAP rate are surrendered to the insurance company to pay for the expense of the product.
The views expressed are not necessarily the opinion of Royal Alliance Associates Inc, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Individual circumstances vary. Investing is subject to risks including loss of principal invested. No strategy can assure a profit against loss.