30 Sep 2020
Risk is an unavoidable aspect of the market. Markets have faced moments of crisis similar to the current one in the past and maybe facing in the future as well. However, relying on the orthodox income stream in an unpredictable market could result in losing years of hard-earned savings.
The risk-averse way of planning long-term savings is to avoid investing in highly volatile funds and being cautious. Planning for a bear market will enable you to cope up with reduced earnings in market turmoil while maintaining the usual lifestyle. Some key aspect to focus on are:
Don’t Put All Eggs in a Single Basket:
The first and foremost thing to do in a bearish market is portfolio diversification. You should start with accessing your asset allocation, as in the number of stocks, bonds, or cash equivalents you should own. The thumb rule of investing says that you should lay off risker holdings as you get closer to retirement. Work with a financial advisor and do a periodic rebalancing of your account.
Always remember that all bonds are not equal. If you have bonds in your portfolio, it can counterbalance market volatility. However, an adequate amount of stock funds may aid you in safeguarding the main amount and counterbalance inflation. The primary goal of a smart investor is to mix up the portfolio with assets that have Yin-Yang kind of combination to balance out each other.
Keep Some Cash on Hand:
After retirement, one generally doesn’t have long-term investment plans in mind. However, in order to safeguard against outliving the assets, it is advisable to hold on some stocks. In any of the scenarios, a balancing act is important and for that experts suggest keeping cash or cash equivalents like short-term bonds and certificates of deposit that can last up to five years, if things go south.
Plan Your Withdrawals And Strictly Follow It:
You will have a substantial amount of money at the time of retirement if you invest smartly. However, the most important thing is to save them for a rainy day, i.e. in a volatile market. Don't overspend, as it will hamper your investment strategy. Experts say you should withdraw only 3% - 5% of your fund in the first year of retirement and manage your lifestyle accordingly.
Don't Be Emotional in Money Matter:
Making impulsive decisions is a big no when it comes to retirement savings. We all have the temptation to do some bandage on the losses by selling in a bearish market. However, most of the time, we act when it is too late. Being patient and holding the nerve is the key to overcome these situations. And these are the times when periodic rebalancing comes handy. If you have done proper planning, it is most probable that you will buy more in a bearish market. So, by purchasing at a low price, you can reap the benefits of market rebounds in the future.
Lastly, by being proactive in a bearish market, you will have an easier time absorbing the shocks. More importantly, don't make an early withdrawal of retirement savings in these cases, as it might add a tax burden on your savings. To avoid any such situations, use the following Retirement Calculator to plan for stormy weather in advance and have a good financial advisor to guide you through to your journey.