More than 10 years until retirement
You've reached a point in life where you are earning a good income, getting a handle on expenses and investing for your future. This may be your first experience with a very volatile market. Since your portfolio is probably positioned more aggressively for long-term goals like retirement, you're probably finding the recent market turmoil particularly difficult. Here are some steps you can take now.
Stay in the market and invest regularly
Your emotions might be telling you something different, but the money you have already invested should probably stay invested. In addition, if you are making regular investments through your workplace savings plan you should continue to do so. And if you're not, you should start. The reason is simple — there is a risk to being “out of the market.” Missing even just a few of the best days in the market can have a significant impact on your overall return — as this chart illustrates.
Revisit your portfolio diversification
Now is an important time to make sure your portfolio is still diversified across an appropriate mix of stocks, bonds, and other investments. A financial advisor can help you determine how your portfolio should be positioned based on today's financial outlook and your personal goals.
Consider other risks
While volatility may be the most pressing issue right now, it's not the only risk that can have an effect on your investment strategy. Keep these other risks in mind as well:
- Longevity– You may not realize it, but you could spend as many years in retirement as you did working. Consider ways to grow your assets to outpace inflation and preserve your standard of living.
- Taxes – Tax-deferred or tax-exempt investments help your assets grow in the most tax-efficient way. Although these investments may grow at a lower interest rate now, they could provide tax advantages in the long run.
- Health care – Plan for medical costs to rise faster than inflation. Out-of-pocket health care expenses are currently 13% of the money you need each year in retirement, and fewer employers are offering health care for retirees. Plan for this by adjusting your savings accordingly.
- Unexpected events – Job loss, illness, changes to Social Security, or the needs of a child or parent can all have a significant impact on your finances. Explore financial options that can accommodate setbacks like these in order to protect your financial security now and during retirement.
Make sure you have a comprehensive financial plan
Whatever your goals, it's important to have a comprehensive financial plan. One of the benefits of planning is that it can help reduce feelings of certainty. In fact, according to a recent national study, 74% of people with a comprehensive financial plan feel financially prepared despite volatile market conditions.1 Learn more about the benefits of financial planning.
1 The Financial Planning Association (FPA®) and Ameriprise® Value of Financial Planning Study, was conducted by Harris Interactive in June/July of 2008 among 3,022 adults. While market volatility was significant during the study period, the dramatic financial developments later in the year, which may have affected attitudes and behaviors reflected in this report, had not yet occurred.
Diversification helps you spread risk throughout your portfolio, so that investments that do poorly may be balanced by others that do relatively better. Diversification and asset allocation do not guarantee overall portfolio profit or protect against loss.
Neither Ameriprise Financial nor its affiliates or representatives may provide tax or legal advice. Please consult your tax advisor or attorney about your specific situation.
Chart is for illustrative purposes. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. The chart shows the S&P 500 total return. Dividends are reinvested. It is not possible to invest directly in an index. Source: Ned Davis Research, Inc.
Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA and SIPC.
